Private capex outlook is rising, but what is driving project distress now? | Economy & Policy News

India’s private-sector capex outlook is strengthening, but the reasons projects run into distress are changing. New project announcements have surged, while market conditions and lack of promoter interest have emerged as the main causes of project stress.

NIPFP defined distressed projects as those classified as either “shelved” or “abandoned”. A shelved project is withdrawn before implementation and may be revived later, while an abandoned project is withdrawn during implementation with no indication of revival.

The RBI has also reported an increase in the private capex pipeline. In its September bulletin, the central bank estimated private-sector capex at ₹3.2 trillion for FY27, compared with ₹2.6 trillion in FY26. The aggregate cost of projects reached a record ₹4.4 trillion in FY26, up from ₹3.7 trillion in FY25.

“Looking ahead, the investment outlook is expected to remain healthy, although heightened global uncertainties are likely to temper the investment sentiment,” it said.

Why are projects still getting distressed?

The NIPFP analysis showed that the nature of project distress has changed over the past decade.

In FY14, governance-related issues such as land acquisition, environmental clearances and fuel or feedstock supply accounted for 60 per cent of distressed projects. That share had fallen to 20 per cent by FY26.

At the same time, NIPFP classified 80 per cent of distressed projects in FY26 under “Other issues”, which include funding constraints, market and economic conditions and operational challenges.

Within this category, unfavourable market conditions and lack of promoter interest were the major factors in the past three years. Together, they accounted for nearly 72 per cent of distressed projects in FY26.

NIPFP said governance-related problems had earlier affected private investment through delays involving land acquisition, regulatory clearances and fuel supply. It linked the decline in such problems to faster environmental and statutory clearances, single-window approval systems, land-acquisition measures, coal-sector reforms and the Insolvency and Bankruptcy Code.

Where is private investment moving?

The private investment pipeline is also becoming more concentrated in emerging sectors, NIPFP found.

It said that the share of private investment going towards renewable energy, conventional energy and ITES rose from about 25 per cent in FY21-FY23 to 38 per cent in FY24-FY26. At the same time, traditional sectors such as transport services, two- and three-wheelers and tourism saw a decline in their share.

Across electricity, ITES/data centres, other electronics and steel, around 55 per cent of private-sector investment was directed during FY24-FY26, compared with about 45 per cent during FY21-FY23.

“The growth of AI and cloud computing is increasing demand for data centres, electricity, semiconductors and digital infrastructure. Supply-chain diversification is also supporting electronics and chip manufacturing,” NIPFP said.

The institute also said the energy transition is creating opportunities in areas such as biofuels, compressed biogas and coal gasification. Government support includes schemes such as the Production-Linked Incentive scheme, the IndiaAI Mission and the Semicon India Programme.

Credit is also moving towards investment

Bank credit data pointed to an increase in financing activity. Incremental industrial bank credit reached ₹6 lakh crore in FY26, the highest expansion during FY14-FY26, according to NIPFP.

“Basic metals, engineering, chemicals, textiles and food processing accounted for about 56 per cent of incremental credit to the non-infrastructure sector during FY24-FY26,” it added.

Infrastructure credit reached an eight-year high of ₹1.2 trillion, driven largely by the power sector. NIPFP said credit growth in infrastructure was more than 3.3 times its earlier level, while the non-infrastructure sector recorded 1.8 times growth in FY26.

The new risk for private capex

The decline in domestic governance-related constraints does not remove project risks. NIPFP said the current risks are increasingly linked to market conditions, geopolitical developments, input costs and supply chains.

“The West Asia conflict was followed by a 56 per cent year-on-year fall in private investment announcements in March 2026,” it said.

The report also cautioned that rising investment announcements do not necessarily translate into completed projects. “Unless the project is commissioned and production commences,” the study said, the risk of projects being shelved or abandoned remains.