Why is this noteworthy? One, unlike infrastructure capex, which is dominated by the central and state governments, industrial capex has over 60% of it accounted for by the private sector. Thus, a jump in industrial capex signals an increase in private capex overall. The immediate post-pandemic milieu has seen only large players in sectors such as cement and steel undertaking capex, given that capacity utilization across assets is still not above pre-pandemic levels.
Nevertheless, it is the Production-Linked Incentive (PLI) scheme that we see as a major driver of industrial capex, taking it to over ₹4 trillion annually over the next three years. The scheme could drive 13-15% of industrial capex over the next three fiscal years. And of the total PLI capex plans, nearly 55% is green. This trend is visible across many industrial segments—either for ecosystem development or for better efficiency.
Green capex has begun to soar: Crisil’s analysis across infrastructure and industrial segments indicates that nearly 10% of the total capex through fiscal 2025-26 could be green and may rise to over 20% by 2030. Climate change and calamities such as the pandemic have catalysed how businesses have started factoring in environmental, social and governance (ESG) aspects.
Moreover, India has set itself bold targets as part of its climate commitments at CoP-26, including 500GW of non-fossil fuel capacity, 50% generation from renewable sources, a 1-billion tonne reduction in emissions, and a drop in emission intensity through various efficiency drives, all of it aimed at achieving carbon neutrality by 2070.
India’s power and transport segments will be the early movers, since they account for the lion’s share of our emissions. Crisil expects about ₹22-24 trillion to be spent on decarbonization through 2030, of which a big chunk will be in these two fields. Renewable energy alone would account for 65% of total green investment, increasing its share in total power capacity to 49% from 25% today.
Additionally, investments through Centre-led schemes such as the Revamped Distribution Sector Scheme could halve aggregate technical and commercial losses from their current high of 23-24%. Areas such as flue gas desulphurization and smart metering will see spends of ₹2 trillion, too. And given that captive plants make up at least 10-12% of India’s power production, companies in sectors like cement and steel are set to invest heavily in technologies such as waste heat recovery and green hydrogen.
In transportation, most emissions happen on roads, so efforts will focus on electric vehicles (EVs), batteries and their components. The government is looking at multiple technologies. While ethanol blending and compressed natural gas penetration have been on the agenda, a faster shift to EVs is expected post 2025. Hydrogen-linked commercial-carriage transport systems will see investments towards the fag end of 2030.
Large corporations geared for change: On their part, large Indian businesses are serious about reducing their carbon footprint. An analysis of the top 100 listed industrial companies shows that some 60% of them make greenhouse gas disclosures, at least half have some form of climate action initiated, and a quarter have set net-zero deadlines, mostly earlier than India’s 2070 target.
The capex commitments of companies that have made green capex announcements total ₹14 trillion, which is higher than overall annual capex in recent years. Large players may account for about 75% of our green investments until 2030.
Supportive financial profiles: Sound financial profiles are a prerequisite for a sustained investment cycle, and India Inc appears to be well placed on this score as well. For corroboration, Crisil assessed over 740 companies from about 40 sectors, excluding banking, financial services, and insurance. These companies account for 50% of the National Stock Exchange’s total market capitalization and 35% of total outstanding bank debt, which makes it a fairly representative sample.
Between fiscal years 2019-20 and 2021-22, the operating profits of these companies jumped approximately 30%, with favourable trends visible on several parameters. Crisil’s analysis also shows that their total debt dropped in 2020-21, led by short-term debt. This, along with improving cash balances and rising profits, led their net debt to earnings before interest, tax, depreciation, and amortization (Ebitda) to a decadal low of 2.3 times. Nearly two-thirds of these companies showed a drop in net debt. The credit profiles of these companies were comfortable too, with upgrades-to-downgrades ratio for this universe positive over the four quarters of fiscal 2021-22.
All this indicates a change in investment mindset that could give us the wherewithal for a low-carbon morrow.
Amish Mehta is managing director and CEO of CRISIL Ltd
