India's industrial capital expenditure remains weak due to a demand shortfall, which policymakers and analysts are actively trying to address.

Recent investment growth has mainly come from households, real estate, and services, while private manufacturing capex remains subdued, indicating a narrow and uneven recovery.

Structural demand deficiencies, driven by stagnant household incomes and global trade challenges, cannot be fixed solely through monetary policy; deeper reforms like income support and policy easing are essential.

The slowdown in global trade and export markets has further suppressed demand for Indian manufactured goods, as global overcapacity and aggressive foreign export strategies increase competitive pressures.

Although India experienced a post-pandemic rebound, its investment as a share of GDP in 2024-25 is still below the 2011-12 peak, with higher investment rates needed to sustain 8% GDP growth.

Industrial capacity utilization has declined from over 80% in the 2000s to around 70% in 2016, with only partial recovery post-pandemic, reflecting weak demand and reluctance for new investments.

Achieving sustained growth in industrial capex requires addressing core demand issues through economic reforms that increase disposable incomes and support local manufacturing, rather than relying solely on cyclical policy measures.

While services exports like IT continue to perform well, they have limited impact on physical capex, which is vital for manufacturing growth.

Domestic demand issues are driven by declining household consumption, income inequality, stagnating real wages—especially among low-skill workers—and rising household debt, all of which limit spending capacity.