Sector Analysis

Posted On: February 25, 2026

Indian Capital Goods Sector Analysis | Feb 2026

Industry Overview

India’s capital goods sector is a strategic cornerstone of industrial growth, contributing ~12% to manufacturing GVA and ~1.8% to GDP. It underpins infrastructure creation, industrial capacity expansion, and advancement in technology. The sector includes machine tools, heavy engineering, electrical equipment, construction machinery, mining equipment, and process plant machinery.

• Public Capital Expenditure: Rose 4.2× from ₹2.63 lakh crore in FY18 to ₹11.21 lakh crore in FY26; FY27 BE at ₹12.2 lakh crore.
• IIP Growth: Capital goods output grew 8.1% YoY in Dec 2025.
• Employment: Supports ~5 million jobs directly and indirectly.
• Exports: Rising with India–US and India–EU trade deals.

Market Size and Growth Metrics

• Production Value (FY25): ~₹5.2 lakh crore across sub-sectors.
• Machine Tools: Production reached ₹14,286 crore in FY25.
• Earthmoving & Mining Machinery: Output ~₹80,750 crore in FY25.Electrical Equipment: Double-digit growth in transmission equipment and transformers.
• Forecast: CAGR of 9–11% through FY27, driven by infra push and renewables.

Market Dynamics and Drivers

• Growth Drivers: Public capex, PLI schemes, Make in India, renewable energy, defense modernization.
• Supply Chain: Strong domestic base, but dependence on imported high-tech components.
• Technological Trends: Industry 4.0, automation, AI-enabled manufacturing, green machinery.
• Consumer Trends: Rising demand from infra, data centers, defense, and renewable projects

Competitive Landscape

• Large Players: L&T, BHEL, Siemens India, Cummins, ABB.
• Mid-cap & Emerging: Kirloskar Oil Engines, Kalpataru Projects, Bharat Forge.
• Global Integration: India emerging as a hub for container manufacturing, tool rooms, and specialized machinery.
• Buyer Power: High, with infra and industrial clients demanding cost efficiency and innovation.

Regulatory Measures

• Ministry of Heavy Industries: Capital Goods Scheme (Phase II) for competitiveness, SAMARTH Centers for Industry 4.0.
• PLI Schemes: Incentives for machine tools, electrical equipment, and EV-related capital goods.
• Union Budget 2026–27: Customs duty exemptions, tax incentives, ₹10,000 crore container manufacturing scheme.
• Economic Survey 2025–26: Highlights capital goods as a multiplier for long-term capex cycles.

Macro Environmental Analysis

India’s capital goods sector is being driven by infrastructure expansion across roads, railways, ports, and renewable energy. Exports are strengthening through trade deals with the US and EU, though commodity price volatility continues to pressure margins. While private investment remains selective, it is being supported by the crowding-in effect of public capex. At the same time, climate policy is encouraging adoption of green machinery and energy-efficient equipment, reshaping industry practices

SWOT Analysis – Indian Capital Goods Sector

Strengths

• Strong domestic manufacturing base.
• Policy support via PLI and customs duty exemptions.
• Rising exports and global integration.
• Industry 4.0 adoption.

Weaknesses

• Dependence on imported high-tech components.
• Commodity price volatility.
• Limited private capex momentum.

Opportunities

• Renewable energy and defense modernization.
• Container manufacturing and tool room expansion.
• Export growth via trade deals.
• Green capital goods and automation.

Threats

• Global slowdown impacting demand.
• Competition from China and ASEAN.
• Margin pressures from raw material costs.
• Technology gaps in advanced machinery

Future Outlook

• Public capex to sustain double-digit growth.
• Capital goods output projected to cross ₹6 lakh crore by FY27.
• Exports expected to grow 12–14% annually.
• Industry 4.0 and green capital goods to dominate investments.

Conclusion

India’s capital goods sector is positioned for robust expansion, supported by infrastructure spending, policy incentives, and global trade integration. While risks from commodity volatility and import dependence remain, the sector’s resilience and government-backed initiatives make it a core driver of India’s industrial transformation.

Sources

• Ministry of Heavy Industries – Annual Reports & Capital Goods Scheme (Phase II)
  Provides official data on the Scheme on Enhancement of Competitiveness in the Indian Capital Goods Sector, SAMARTH Centres for Industry 4.0, and PLI-linked initiatives.
• Year-End Review 2025 – Ministry of Heavy Industries
  Summarizes measurable outcomes of capital goods development, machine tool manufacturing, and EV-linked capital goods capacity expansion under government schemes.
• Make in India & Capital Goods Revolution (Ministry of Commerce, 2025)
  Highlights the role of heavy engineering, machine tools, and electrical equipment in driving industrial growth, with official inputs from IEEMA and government trade policy.

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