India's private investment declines despite soaring corporate profits
- Private investment in India's economy has fallen to a 10-year low of 33% of GDP.
- Factors like weak domestic consumption, muted export demand, and competition from Chinese imports are hindering growth.
- The decline in private investment poses challenges for India's economic growth ambitions.
India has faced a declining trend in private investment as a percentage of gross domestic product (GDP) since the global financial crisis of 2007. Despite the economy achieving impressive growth rates, private expenditure reached a ten-year low of 33% this financial year. Several factors contribute to this stagnation, including weak domestic consumption in urban areas and muted export demand, alongside increasing competition from cheap Chinese imports. Icra’s Chief Rating Officer, K Ravichandran, noted that these issues have hampered the ability of Indian corporate houses to expand their capacities. Furthermore, global uncertainties and the phenomenon of overcapacity have deterred investment impulses within the private sector, as highlighted in India's recent economic survey. Bank credit availability has improved significantly, with regulation easing since 2003, which typically would encourage investment. However, in 2022 and 2023, while there was a slight increase in investment rates, corporate India's response has been tepid, primarily due to a lack of demand to support new ventures. JP Morgan India's Chief Economist, Sajjid Chinoy, emphasized that even with high corporate profitability seen this year—at a 15-year peak—companies remain hesitant to invest without the promise of good returns. Although more private companies have expressed intentions to invest compared to previous years, the outcomes of such intentions remain questionable, as ongoing uncertainties, particularly related to global trade tariffs, continue to loom over the financial landscape. The restrained private investments have serious implications for India's growth prospects. According to the World Bank, India needs to maintain a growth rate of 7.8% annually over the next 22 years to achieve high-income status by 2047. To support this ambition, it is essential for both private and public investments to rise above the current 33% of GDP, reinforcing the need for a more dynamic investment climate in the country.