India’s manufacturing sector is facing a challenging period as factory investment loses momentum after two years of strong growth. According to the latest Annual Survey of Industries (ASI), registered factories spent less on fixed assets in the 2024–25 financial year, pointing to a slowdown in investment in machinery, equipment and other productive assets.

Gross fixed capital formation (GFCF) among registered factories fell 8 per cent to ₹63,497 crore in FY2024–25. This was the first annual decline since the pandemic year of FY2020–21. The fall follows a sharp 77 per cent increase in FY2022–23 and a further 18 per cent rise in FY2023–24. The figures were reported by Business Standard on 1 October 2026.

The decline does not mean India’s manufacturing sector has stopped growing. However, it suggests that businesses may be taking a more cautious approach to expansion, weighing the cost of new investments against uncertain demand and future returns. Factory employment has continued to rise, but investment in the assets needed to improve productivity has weakened.

There are further signs that the slowdown may be continuing. Provisional data from the Centre for Monitoring Indian Economy (CMIE) show that new manufacturing project announcements fell 32 per cent year-on-year in the July–September 2026 quarter. While announcements do not necessarily translate into completed projects, the decline points to growing caution among businesses considering new manufacturing investments.

WHAT DO THE LATEST FIGURES SHOW?

The ASI data highlight a clear shift in factory investment.

Gross fixed capital formation measures spending on productive assets, including buildings, machinery and equipment. A decline can indicate that companies are delaying expansion, replacing fewer assets or limiting upgrades to their existing facilities.

Factory investment had grown rapidly over the previous two years. The 77 per cent jump in FY2022–23 was followed by an 18 per cent increase in FY2023–24. Against that backdrop, the 8 per cent fall in FY2024–25 marks a significant reversal.

Some moderation was possible after such strong growth, but the latest figures raise questions about whether businesses are confident enough to continue expanding at the same pace.

Productivity indicators also point to a slowdown. Fixed capital per worker grew by 3.1 per cent in FY2024–25, compared with 5.9 per cent a year earlier. Output per worker increased by just 0.5 per cent, following a 0.4 per cent decline in FY2023–24.

Together, these figures suggest that employment is growing faster than the capital available to support each worker. If that trend continues, manufacturers could find it harder to improve efficiency and increase output without significantly raising costs.

NEW MANUFACTURING PROJECTS ARE LOSING MOMENTUM

The slowdown is also visible in plans for future investment, although the wider picture remains mixed.

Provisional CMIE data, reported on 1 October, show that new manufacturing project announcements fell 32 per cent year-on-year in the September quarter.

Across all sectors, private-sector project announcements reached ₹8.8 trillion, down 2 per cent from the same period a year earlier and 49 per cent from the June quarter. Government project announcements also declined, falling 27 per cent year-on-year and 47 per cent quarter-on-quarter to ₹1.3 trillion.

However, not all the investment figures point in the same direction. Total new project announcements across the economy rose 33 per cent year-on-year to ₹30 trillion between April and September 2026, supported by a strong June quarter.

This suggests that investment plans remain substantial, but activity is uneven. Manufacturing has lost momentum in recent months even as the broader economy continues to record significant project announcements.

It is also important to distinguish between the two measures. Factory capital formation reflects investment in productive assets, while project announcements represent proposed spending. Some announced projects may proceed as planned, while others could be delayed, scaled back or cancelled.

Neither measure alone tells the full story of India’s investment outlook.

WHY ARE BUSINESSES BECOMING MORE CAUTIOUS?

1. Uneven demand is making expansion decisions harder

Manufacturers generally invest in new facilities when they expect demand to grow. If customers are spending cautiously or sales remain unpredictable, businesses have less reason to commit money to additional capacity.

Demand also varies across industries and income groups, making it difficult for some manufacturers to judge how quickly sales will grow.

Bank of Baroda chief economist Madan Sabnavis, commenting on the ASI figures, highlighted softer private-sector investment, particularly in consumer goods, amid pressure on rural and urban demand. He also pointed out that investment in infrastructure-related industries such as steel and power can fluctuate because major projects tend to be undertaken in phases.

For companies facing uncertain sales, improving existing facilities may be a safer option than building new ones.

2. Global uncertainty is weighing on long-term decisions

Trade tensions, geopolitical risks, changing tariffs and volatile input costs are adding to the challenges facing manufacturers.

A factory investment usually involves a long-term commitment. Before approving a project, companies need to assess future demand, access to export markets, raw-material costs, financing and supply-chain reliability.

When these factors become harder to predict, businesses may delay spending until conditions become clearer.

Manufacturing project announcements had already weakened earlier in 2026. CMIE data reported in April showed a sharp decline in new manufacturing project announcements during the January–March quarter, with global uncertainty and unused production capacity among the challenges affecting expansion plans.

The latest quarterly figures suggest that the pressure on manufacturing investment plans has not fully eased.

3. Companies may be making better use of existing factories

Expanding production is not always the most practical response to rising business costs or uncertain demand.

Building a new factory requires substantial spending on land, machinery, electricity, labour and logistics. It can also take months or years before a facility begins generating returns.

If existing plants can handle current orders, companies may choose to improve efficiency, reduce operating costs or upgrade selected equipment instead of investing in additional capacity.

For individual businesses, this can be a sensible decision. But if companies across the economy continue postponing investment, India could eventually face slower growth in industrial capacity and productivity.

FACTORY EMPLOYMENT IS RISING, BUT PRODUCTIVITY REMAINS A CONCERN

One notable finding in the ASI data is that employment in registered factories reached a record high in FY2024–25, even as investment in fixed assets declined.

This presents a mixed picture for the manufacturing sector. More people are working in factories, but the amount of capital supporting each worker is growing more slowly. Output per worker has also recorded only limited growth over the past two financial years.

Job creation remains important, but a competitive manufacturing industry needs more than a growing workforce. Modern machinery, reliable power, efficient production systems and practical skills training all help workers produce more with the resources available.

If investment remains subdued for an extended period, manufacturers may struggle to improve productivity, control costs and move into higher-value production.

At the same time, weaker capital spending does not automatically mean factories are becoming less productive. Companies may still increase output by using existing equipment more efficiently.

The next few quarters should provide a clearer picture of whether manufacturers are making better use of current capacity or holding back investment that will eventually be needed to support growth.

WHAT DOES THIS MEAN FOR INDIA’S MANUFACTURING AMBITIONS?

India has been working to expand domestic manufacturing, attract international companies and build stronger supply chains in sectors ranging from electronics and clean energy to industrial machinery.

Achieving these goals requires sustained investment in factories, technology and infrastructure. Businesses need confidence that demand will justify expansion, logistics networks can support production and the policy environment will remain reasonably predictable.

The latest figures do not prove that India’s manufacturing strategy is failing. They also do not suggest that every industry is cutting back on investment. Instead, they highlight a slowdown that policymakers and businesses will need to watch closely.

Government spending on roads, railways, logistics and power infrastructure can help create the conditions for industrial expansion. However, public investment cannot fully replace private companies' decisions to purchase machinery, upgrade technology and build production facilities.

Ultimately, businesses must believe that the returns from expanding capacity justify the cost and risk.

If that confidence weakens, even strong policy support may take time to translate into actual investment.

THE ECONOMIC RISKS TO WATCH

A prolonged slowdown in factory investment could affect more than the manufacturers themselves.

  • Employment: Fewer new factories and expansion projects could limit future job creation and reduce demand for contractors, transport companies and suppliers.

  • Productivity: Slower investment in machinery and equipment could make it harder to improve efficiency and output per worker.

  • Industrial supply chains: Delayed projects could restrict domestic production of components, materials and other industrial goods.

  • Regional development: Areas depending on new manufacturing facilities could see slower industrial growth and fewer employment opportunities.

  • Global competitiveness: Companies that postpone technology upgrades may struggle to match the costs and efficiency of competitors with more modern production facilities.

These are potential consequences, not inevitable outcomes. Much will depend on how long investment remains weak, which industries are most affected and whether existing factories can meet future demand.

FACT CHECK METER

FACT METER: 95%

STATUS: DATA-BASED REPORT — FACTORY INVESTMENT AND PROJECT MOMENTUM WEAKEN

CONFIRMED: Gross fixed capital formation among registered factories fell 8 per cent to ₹63,497 crore in FY2024–25, marking the first annual decline since FY2020–21, according to the latest ASI figures reported by Business Standard.

ALSO REPORTED: New manufacturing project announcements declined 32 per cent year-on-year in the July–September 2026 quarter, based on provisional CMIE data. This measures proposed projects rather than actual factory investment.

IMPORTANT DISTINCTION: The factory investment figures cover FY2024–25, while the manufacturing project-announcement figures relate to July–September 2026. They measure different aspects of investment across different periods and should not be treated as directly equivalent.

AWX VERDICT: The available figures point to weaker factory capital formation and a recent slowdown in manufacturing project announcements. However, they do not establish that investment is declining across every industrial sector or that India’s manufacturing industry has entered a prolonged contraction.

WHAT TO WATCH NEXT

1. The next ASI release

Future data will help establish whether the decline in factory investment was temporary or part of a more persistent slowdown.

2. October–December project announcements

The next CMIE figures will indicate whether manufacturing investment plans recover after the sharp decline in the September quarter.

3. Actual private-sector spending

Companies' spending on machinery, factory expansion and technology upgrades will provide a clearer picture of investment than announcements alone.

4. Industrial demand and capacity utilisation

Stronger orders could encourage businesses to expand. Weak demand or substantial unused capacity, on the other hand, could lead companies to delay new projects.

5. Productivity growth

Changes in output per worker will help show whether factories are using their existing equipment and workforce more efficiently.

THE AWX BOTTOM LINE

India’s factory investment slowdown is a warning sign, but it is too early to draw sweeping conclusions about the country’s industrial future.

After two years of rapid growth, gross fixed capital formation among registered factories fell 8 per cent in FY2024–25. The recent decline in manufacturing project announcements adds to concerns that businesses are becoming more cautious about committing money to new capacity.

The challenge now is to turn India's manufacturing ambitions into completed projects, productive assets and sustained improvements in output. Rising factory employment is encouraging, but long-term competitiveness will also depend on investment in machinery, technology, infrastructure and workforce skills.

The key question is whether companies are taking a temporary pause after a period of rapid expansion or whether uncertain demand and global headwinds are beginning to hold back the next stage of manufacturing growth.

ATTLAS WIRE | AWX WORLD NEWS

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