India Inc hits pause on factory expansion in March

India's manufacturing sector witnessed a significant downturn in investment during Q4FY26, with new project announcements plummeting by 60% sequentially and 78% year-on-year, largely due to escalating global uncertainties, geopolitical conflicts, and persistent issues with unutilised capacity.

Companies more than halved investment announcements for new manufacturing facilities in the fourth quarter (January-March, Q4) of 2025-26 (FY26).

The value of new project announcements fell 60 per cent in the three months ending March 2026 (Q4FY26), compared with the preceding three-month period ending December 2025 (October–December, Q3), according to data from project tracker Centre for Monitoring Indian Economy.

The numbers are released quarterly and are subject to revision.

The latest figures show that new manufacturing project announcements fell 78 per cent year-on-year to Rs 1.7 trillion.

There were more than Rs 4 trillion worth of announcements in Q3FY26, and over Rs 8 trillion in Q4 of last year.

"That's a matter of concern, undoubtedly," said senior professor, School of Management and Labour Studies at the Tata Institute of Social Sciences (TISS), given the sector's potential for job creation and reducing inequality over the long term.

India has been adding roughly a million people to the workforce every year, according to the Azim Premji University's State of Working India 2026 report.

An October 2025 NITI Aayog report observed that manufacturing has the capacity to create more than 100 million jobs over the long term.

Impact of Global and Domestic Factors

The overall value of new project announcements fell both sequentially and year-on-year in a quarter marked by continued hostilities in West Asia across key sectors.

The US and Israel attacked Iran towards the end of February, and the conflict has continued since.

The quarter was also marked by uncertainty over a trade deal with the US, although an agreement had been struck before the Iran conflict.

"If you look at it in terms of overall announcements, there has been a slowdown.

"Global uncertainty has an impact on certain sectors affected by tariffs.

"There has been more circumspection by companies in the current environment, given prevailing capacity utilisation rates," said Bank of Baroda chief economist Madan Sabnavis.

More than a quarter of existing manufacturing capacity was lying unutilised as of September, according to the latest Reserve Bank of India Order Books, Inventories, and Capacity Utilisation Survey.

Private companies typically invest in new factories when existing production capacity is closer to full utilisation.

Government Capex and Future Outlook

The government has been the primary driver of capital expenditure (capex) in the absence of strong private investment.

Both government and private sector new project announcements recorded a year-on-year decline in Q4FY26.

The government had made a strong capex push in recent years, Sabnavis said.

It has likely slowed spending towards the end of the year due to fiscal considerations.

There is a risk of revenue loss from excise cuts, lower profits from public-sector undertakings, and higher fertiliser subsidies in 2026–27, which may affect capex plans.

The government is likely to take a call on investments based on available fiscal space in the coming days, he said.

Q4 is typically the strongest for many businesses, said independent market expert Deepak Jasani.

This time, however, it may be affected by multiple disruptions, including logistical and supply chain issues, higher freight costs, and a rise in crude oil prices and its derivatives due to the Iran war.

This is likely to affect topline growth and earnings.

Margins are expected to remain stable at best, and may weaken.

While there have been selective capex announcements, firms may continue to weigh their options, according to Jasani.

"There may be some slowdown in execution," he said.

Competitive intensity, regulatory changes including taxes and duties, and technological shifts have tested the adaptability of many small and mid-sized companies, which may prefer to wait before committing to large investments, he added.

The power sector has seen a decline, possibly due to excess capacity in conventional power plants and lower investment in renewable energy.

The transport service sector has slowed, reflecting lower airline capex after a major push earlier, according to Sabnavis.

Completed projects held steady at Rs 2.8 trillion, roughly in line with the previous year.