The Time for private investment is ‘NOW’

Buoyed up by a young and dynamic workforce, substantial government investments in infrastructure, strong financial sector balance sheets, and a globally acclaimed digital stack, India’s growth outlook appears robust.

The recovery witnessed following the Covid-19 pandemic has positioned the country as the fastest-growing large economy, with the International Monetary Fund (IMF) expecting India to grow at 7 per cent in FY2025.

However, given that private sector investment, especially in machinery, equipment, and intellectual property, has lagged in recent years, this recovery is incomplete. As noted in the latest Economic Survey, private sector gross fixed capital formation (GFCF) in machinery, equipment, and intellectual property products grew cumulatively by only 35 per cent during FY2020-23. Meanwhile, its GFCF in “dwellings, other buildings, and structures” increased by 105 per cent during the same period?

Interestingly, during the same period, the share of private sector profits to gross domestic product (GDP) reached a 15-year high, as noted in the Economic Survey 2023-24. This growth in profits was largely financed by what was described as the “revenge consumption” of Indian consumers in FY2021 and FY2022.

Given that this increase in profits didn’t translate into increasing value creating investment, one is forced to question – what has the private sector been doing with its cash?

By effectively navigating external shocks without increasing their reliance on debt, the private sector has been able to build robust balance sheets.

The stage is, therefore, set for the private sector to deploy capital and invest in growth, which will not only create employment, build capabilities, and improve efficiencies, but also drive consumption, and translate into better sales.

Manufacturing companies must use the surplus to digitise the production value chain with the goal of efficiently designing, building and selling innovative products and services catering to the needs of the discerning Indian consumer.

Any further delay in reinvesting profits would slowly eat into the competitiveness of enterprises and the economy as a whole.

Despite softening inflation, the degrees of freedom for the central bank to reduce interest rates might decrease, due to higher government borrowing to keep pump-priming the economy.

As the old proverb goes, the best time to plant a tree was 30 years ago or now. The best time to initiate private investment is ‘now’.

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