India’s Economy: AI Fuels Capex Growth for Fund Managers

Indian fund managers are expressing significant optimism regarding the nation’s economic trajectory, driven by a robust capital expenditure cycle and the global “China+1” supply chain diversification strategy. This positive outlook is further amplified by the accelerating adoption of Artificial Intelligence (AI) across various industrial sectors.

Catalyzing Investment: China+1 and AI Integration

The convergence of a diversifying global supply chain and advanced AI applications is opening substantial investment avenues within India’s manufacturing, power, and infrastructure domains. AI technology is being strategically deployed to enhance factory productivity and operational efficiency.

AI applications include predictive maintenance, computer-vision-based quality checks, robotics, digital twins, and supply-chain optimization. These technologies are transforming operations in electronics, automobiles, pharmaceuticals, industrial manufacturing, logistics, and warehousing.

Key Numbers: Infrastructure and Public Spending Surges

Infrastructure capital expenditure is projected to reach Rs 90-100 lakh crore between FY26 and FY30, marking a 60% increase compared to the FY21-FY25 period. Public capital expenditure has seen a substantial rise from Rs 2 lakh crore in FY15 to Rs 12.2 lakh crore for FY27.

This significant investment cycle is underpinned by healthy private sector balance sheets, improved bank lending capacity, and sustained government spending. Primary drivers for infrastructure growth include roads, renewable power, and urban development initiatives.

Powering Growth: Demand and Renewable Milestones

A surge in power demand, fueled by manufacturing expansion, digitization, and urbanization, reinforces the investment case for the entire power ecosystem. India has already exceeded its 2030 Paris Agreement target for non-fossil installed capacity, with over 50% of installed capacity from such sources.

Electricity consumption from data centers is anticipated to grow by approximately 15% annually through 2030. This demand further strengthens the investment rationale for the power sector.

AI’s Operational Transformation and Government Support

AI is fundamentally shifting factory operations from conventional automation to data-led processes, supported by key government initiatives. Programs like Make in India, production-linked incentive schemes, and the IndiaAI Mission are fostering this technological integration.

Major manufacturers such as Tata Steel, Tata Motors, Hindustan Unilever, Reliance Industries, and Asian Paints are actively leveraging AI for various operational efficiencies. AI adoption is also extending to Micro, Small, and Medium Enterprises (MSMEs) to modernize operations and meet global export requirements.

Global Standing in AI and Robotics

India’s AI maturity is rapidly advancing, with a significant increase in companies at the advanced adoption stage. The nation is also expanding its industrial automation hardware base, reflecting its growing global presence in robotics.

India’s AI maturity score reached 2.47 on a four-point scale in 2024, according to Nasscom’s AI Adoption Index 2.0. The country ranks seventh globally for annual industrial robot installations, with the domestic industrial robotics market projected to reach about $264 million by 2028.

The “China+1” opportunity presents India with prospects across sectors including engineering, textiles, chemicals, electronics, machinery, pharmaceuticals, and auto components. Meeting global standards in manufacturing will be crucial for India to achieve its ambitious $35 trillion economic goal by 2047.