As per the  report by Crisil, titled ‘The Road Ahead for Investments India’s real investments grew 6.9% on an average annually during FY21–25, outpacing GDP growth of 5.4%, during the same period reflecting strong domestic and external confidence in the economy.

Key Findings of Crisil’s Report “The Road Ahead for Investments”

• Government & PSU Push: Public sector investments rose sharply, averaging 13.9% growth (FY22–24), driving overall momentum.
• Household Contributions: Households, mainly via real estate, recorded 13.4% growth, making them the largest contributors.
• Private Corporate Weakness: Corporate capex lagged at 8.7% growth, dampened by global trade frictions and tariffs.
• Outlook & Recommendations: Fiscal consolidation may slow public investments; report urges regulatory reforms, affordable land/power, better contract enforcement, and FTAs to sustain long-term growth.

India’s Growth and Investment Trends

• Strong GDP Performance: India’s nominal GDP for FY25 stood at ₹33.10 lakh crore (US$ 3.8 trillion), growing at 9.9%, while real GDP growth remained robust at 6.5%, making it the fastest-growing major economy.
• Expanding Domestic Consumption: An estimated middle class of 400 million drives private consumption, with India’s consumer market projected to quadruple by 2025. 
  • Rising disposable incomes fuel this growth.
• Booming Retail Participation: Retail investors now exceed 11 crore, holding nearly 10% of listed equity.
  • Mutual fund SIPs hit an all-time high of ₹26,688 crore (US$ 3.09 billion) in May 2025.
• Rising Foreign and Private Capital: India’s VC funding reached ₹1.18 lakh crore (US$ 13.7 billion) in 2024, while cumulative FDI inflows since 2000 crossed US$ 1.07 trillion, showcasing growing global confidence.

Growth Enablers in India

• Government Capital Expenditure: The government is driving growth through an infrastructure-led push, backed by initiatives such as the National Monetization Pipeline (NMP) and Production Linked Incentive (PLI) schemes across sectors like electronics, automobiles, and textiles.
  • The government has allocated Rs. 1,596 crore (US$ 184.33 million) under the PLI schemes across six sectors during the first half of the fiscal year 2025.
• Policy Reforms: Structural reforms have enhanced India’s competitiveness.
  • Key measures include a simplified FDI policy, the rollout of the Goods and Services Tax (GST), and a corporate tax reduction to 22% (15% for new manufacturing firms).
  • Digital ease-of-doing-business initiatives, such as online approvals and single-window clearances, have significantly reduced regulatory bottlenecks, improving investor confidence.
• Financial Market Depth: India’s domestic savings mobilization is deepening. The mutual fund industry’s Assets Under Management (AUM) reached ₹72.19 lakh crore (US$ 836 billion) in May 2025, reflecting rising household participation.
  • This growth in financial markets diversifies funding sources for industries and reduces reliance on external borrowings.
• FDI Liberalization: India has progressively opened its economy, permitting 100% FDI in sectors such as single-brand retail, Brownfield airports, Insurance and defence (via automatic and government approval routes).
  • Liberalized norms have encouraged global firms to establish local bases, enhancing technology transfer and job creation.
• Technology and Green Transition: Structural transformation is being driven by investments in artificial intelligence, renewable energy, and ESG-certified infrastructure.
  • Since 2020, India has attracted US$ 6.1 billion FDI in renewable energy, highlighting its global leadership in the clean energy transition.
    

Investment in India

Investment refers to capital formation in physical, financial, and human assets that enable sustained growth and productivity.

Reasons for Rising Investments

• Youth Demographic Dividend: India’s largest working-age population (over 65% below 35 years) ensures both a strong labour force and expanding consumer demand.
  • This demographic edge supports sectors like e-commerce, IT services, and manufacturing, making India attractive for long-term investments.
• Growing Middle Class: Rising disposable incomes are driving consumption in housing, retail, healthcare, and digital services.
  • For instance, India’s middle-class households are projected to touch 45% of total households by 2030, creating a vast consumer market.
• Government Reforms: Policies like the PLI schemes across 14 sectors, the National Logistics Policy, and liberalized FDI norms have enhanced investor confidence.
  • These initiatives reduce costs, streamline supply chains, and encourage domestic and foreign companies to scale operations.
• Foreign Capital Inflows: Strong inflows of FDI from Mauritius, Singapore, and the USA highlight global faith in India’s growth.
  • Additionally, private equity and venture capital investments are rising in technology, fintech, and real estate, strengthening capital access.
• Domestic Financial Savings: Retail participation in financial markets has surged, with mutual fund SIP inflows crossing ₹20,000 crore monthly in 2025.
  • This boosts long-term funding stability for businesses.
• Sectoral Opportunities: Expanding markets in renewables, defence, electronics, and AI create new avenues for global and domestic investors.
  • Example: India attracted US$ 6.1 billion FDI in renewable energy since 2020, showing strong sectoral pull.
    

Significance of the Rise in Investment

• Boost to GDP Growth: India’s investment growth is outpacing overall GDP expansion, which strengthens the economy’s long-term productive capacity.
  • Higher capital formation ensures sustained industrial growth, better infrastructure, and improved efficiency, enabling the economy to achieve higher growth trajectories in the coming decades.
• Job Creation: The Production Linked Incentive (PLI) schemes are a major driver of employment opportunities, projected to generate around 60 lakh jobs across sectors such as electronics, pharmaceuticals, textiles, and renewable energy.
  • This large-scale job creation not only provides income security but also enhances skill development in key industries.
• Global Competitiveness: India is rapidly enhancing its export competitiveness by expanding its footprint in high-demand sectors such as IT services, machinery, and renewable energy solutions.
  • By diversifying exports and strengthening its global supply chain presence, India is positioning itself as a reliable partner in global trade, reducing over-reliance on traditional exports.
• Wealth Distribution: Growing retail participation in financial markets ensures wider access to investment opportunities, democratizing wealth creation beyond urban elites.
  • Increased mutual fund investments, digital trading platforms, and IPO participation reflect deeper financial inclusion that benefits middle-class and semi-urban populations.
• Macroeconomic Stability: Strong external fundamentals provide resilience. Forex reserves stand around USD 695 billion (August 2025) offering a robust buffer against currency volatility and global uncertainties.
  • The Current Account Deficit (CAD) remains at 0.6% of GDP, reflecting balanced trade flows and stable capital inflows, thereby reducing India’s external vulnerabilities.
    

Challenges to Investment

• Sectoral Concentration: Foreign Direct Investment (FDI) remains concentrated in a few sectors, with services (16%) and IT hardware (15%) dominating inflows, while critical areas such as agriculture and MSMEs continue to receive inadequate funding.
• Geographic Skew: Karnataka has emerged as a disproportionate magnet for capital, attracting ₹3.28 lakh crore (US$ 38 billion) in venture capital funding between 2020–24
  • This uneven distribution highlights the lack of investment flow to less-developed states and regions.
• Dependence on Few Sources: India’s FDI inflows are heavily reliant on Mauritius (25%) and Singapore (24%), together accounting for nearly half of total inflows. Such dependence makes capital inflows vulnerable to bilateral taxation changes and global financial shifts.
• Real Estate Risks: Private equity investments in real estate touched US$ 2.5 billion in FY24, but they remain volatile and concentrated in warehousing and industrial hubs, raising concerns about sustainability and sectoral bubbles.
• Regulatory Uncertainty: Frequent delays in implementing ESG norms and ambiguities in taxation compliance deter long-term investors, impacting investor confidence.
• Infrastructure Bottlenecks: Despite reforms under the National Logistics Policy, India’s logistics costs remain higher than global competitors, limiting overall competitiveness for manufacturing and exports.
  • The government aims to bring logistics costs down from 13%-14% of GDP to 8%, which aligns with international benchmarks.
    

Way Forward

• Addressing Sectoral Imbalance: To reduce excessive concentration of FDI in services and IT hardware, the government must incentivize investments in agriculture, MSMEs, and renewable energy.
  • Expanding PLI schemes to green industries and smaller enterprises will generate wider sectoral growth and job creation.
• Correcting Geographic Skew: Regional disparities can be balanced by promoting industrial corridors and logistics hubs beyond established centers like Karnataka and NCR. Focused incentives for eastern and northeastern states under the National Infrastructure Pipeline (NIP) can ensure equitable distribution of capital inflows.
• Diversifying Investment Sources: India needs to reduce overdependence on Mauritius and Singapore by attracting investments from Europe, Japan, and West Asia.
  • Strategic partnerships and bilateral agreements can broaden investor bases and reduce vulnerability to sudden policy changes in select source countries.
  • There is a sustained, upward trend of FDI from the European Union (EU) into India, with EU FDI stock reaching €140.1 billion in 2023 up from €82.3 billion in 2019.
• Stabilizing Real Estate Investments: To mitigate risks in volatile real estate funding, policies should encourage diversified investments in affordable housing and smart cities, ensuring sustainable returns instead of overconcentration in warehousing and industrial assets.
• Enhancing Regulatory Clarity: Predictable ESG norms, transparent taxation, and faster compliance procedures will boost investor confidence. Consistent policies under Aatmanirbhar Bharat can ensure long-term stability for foreign and domestic investors.
• Strengthening Infrastructure and Logistics: Bringing logistics costs down from 13–14% to 8% of GDP through the National Logistics Policy Gati Shakti and NIP is critical.
  • Improved multimodal transport and digital freight systems will enhance trade competitiveness globally.

Conclusion

India’s investment surge, driven by domestic reforms, rising consumption, and foreign inflows, marks a structural transformation. With growth outpacing peers, controlled inflation, and strong reserves, India is set to consolidate its position as a global investment hub. Sustaining momentum will require diversifying sectors, widening regional participation, and maintaining policy stability.

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