Low Private Investment in India

India’s GDP growth has rebounded strongly in recent years, but private sector investment (capex) continues to remain subdued. 

The Persistent Problem of Low Private Investment

• Private corporate investment has been stuck at around 12% of GDP since 2011-12, despite various global and local economic shocks.
  • Private Sector Investment as a  share of GDP is 34.4% in case of China (World Bank 2024)
• Over the past 15 years, private investment has shown only minor quarterly fluctuations but has not broken out of this narrow range.
• Private capex share in Gross Fixed Capital Formation (GFCF) fell to 34.4% in 2023-24— the lowest since 2011-12.
• Overall GFCF as % of GDP stands at 33.7% in 2024-25, below the 34%+ levels seen earlier in the decade.

About Private Investment

• Private investment refers to spending by private-sector businesses and individuals to acquire or create physical or financial assets. 
• These assets are expected to generate income or profit in the future.
• It is a core driver of long-term economic growth, productivity, and job creation.

Who Makes Private Investments

• The “private” in private investment distinguishes it from public investment (spending by government and state-owned enterprises). 
• The main actors of Private Investment are:
  • Private Corporations & Businesses: This is the most significant part, often called private corporate investment.
  • Households: This includes spending on residential housing.
  • Non-Profit Institutions

Positive Signs

• Capex by ~2,000 listed non-financial companies rose 11% to ₹9.4 trillion in 2024-25.
• Gross fixed assets of >4,500 companies grew 8.5% YoY as of September 2025.
• The private sector’s share in new project announcements jumped to 70.8% in H1 2025-26, with plans worth ₹24 lakh crore.

Primary Drivers of Low Private Investment

• Weak Demand & Low Capacity Utilization: Lack of strong consumer demand and market uncertainty reduce the incentive for expansion.
  • Current capacity utilization is ~75-76%, below the 79-80% threshold needed to trigger significant new investment.
• Corporate Caution & Behavioral Shifts: Past over-investment and debt crises have made companies risk-averse.
  • Firms prefer share buybacks, dividends, or financial assets over physical expansion.
• Persistent Structural & Cost Challenges: High costs for raw materials, land, and capital.
  • Lengthy approvals, regulatory complexity, and non-tariff barriers.
• Global & External Factors: Uncertain global demand and trade policies (e.g., U.S. tariffs).
  • Competition from cheap imports, especially from China.

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Revival of Private Investment

• Government Stimulus: Major initiatives include the Production-Linked Incentive (PLI) scheme, corporate tax cuts, and a massive increase in public infrastructure spending to “crowd in” private investment.
• Addressing Core Demand: Policies are increasingly targeting the demand side, such as recent cuts to GST rates on household items to boost disposable income and consumption.
• Sectoral Opportunities: Investment is expected to pick up first in sectors with strong domestic demand, such as automobiles, consumer durables, renewables, and electronics.

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