Many private companies are planning to boost their capital expenditure and expand in 2026. The move comes as a result of the strong domestic demand; lower GST and supportive government policies, the Economic Times reports.
Economic Conditions Favour Investment
Several factors are contributing to this favourable investment environment, including strong domestic consumption, GST rationalisation, lower inflation, increased government spending, and the RBI’s rate cut etc.
In September, the government implemented GST rationalisation with a two-slab structure of 5 percent and 18 percent. This has helped household items cheaper, boosting consumption and lowering inflation. In 2025, retail inflation averaged 2.3 per cent compared to 4.9 per cent the year before. Taking these circumstances into consideration, the Reserve Bank of India cut repo rate to 5.25 per cent, leading to a cheaper finance and creating a favourable environment for investment.
Government Spending Boosts Private Sector
The government has been spending heavily on public infrastructure such as roads, railways, and energy projects. This public spending often encourages private companies to invest more, creating a cycle of growth. Between April and October 2025, central government capital expenditure has risen by 32 per cent to 6.2 trillion rupees compared to 4.7 trillion rupees in the same period the previous year.
Rising Capacity and New Projects
According to the report, companies has already shown signs of expansion. Capacity utilisation has been bolstered to about 75 percent. Private capital expenditure increased by 11 per cent to 9.4 lakh crore rupees in the financial year 2025. Order books of capital goods companies, which supply machinery and equipment, grew by 20.7 per cent during the year. The data from the Centre for Monitoring Indian Economy shows that new project announcements hit 14.6 lakh crore rupees in the first half of financial year 2026, almost double the 7.8 lakh crore rupees announced in the same period last year.
Sectors Likely to Benefit
Economists expect investment to rise in industries such as automobiles, consumer durables, renewable energy, fast-moving consumer goods, electronics, and electric vehicles. These areas are closely linked to domestic demand. Sectors like semiconductors, electrical equipment, electric vehicle components, and basic metals are also expected to attract strong investment.
Risks from Global Trade
Despite the positive outlook, there are risks. The uncertainty of trade tensions with the United States is affecting investor confidence. The US has imposed a 50 per cent tariff on Indian goods, including a 25 per cent punitive tariff on importing Russian oil. Negotiations are underway for a bilateral trade agreement, but until then, export-related industries face challenges.
Global factors also play a significant role. China’s excess production capacity has led to flooding international markets with their products, including India. This naturally creates competition for Indian manufacturers. Financial experts warn that while services are supported by domestic demand, manufacturing and construction may face challenges due to global trade conditions.
Outlook for 2026
Strong consumer demand, lower taxes, cheaper borrowing, and government spending are expected to boost private investment higher in 2026. Economists project India’s economic growth at around 7 per cent next year, with private capital expenditure playing a pivotal role in sustaining momentum.
