India’s economic trajectory stands at a defining crossroads. After years of government-led capital expenditure driving infrastructure expansion and economic resilience, the next phase of growth must be powered by private-sector investments. The challenge now is to catalyse a decisive resurgence in corporate investments, ensuring a sustainable growth model that is not overly reliant on public spending.

But even as the government lays down the red carpet for private investments, recent reports suggest that much of India’s private capital seems to prefer boarding a flight rather than breaking ground at home. Why is India Inc. hesitant to bet big on its own turf?

Let’s take stock of the current state of private investments and the factors holding them back.

A closer look at India’s investment landscape reveals a structural slowdown in capital formation. Gross Fixed Capital Formation (GFCF) – a key indicator of investment activity – has been sluggish for over a decade. After peaking in 2011-12, real investment levels declined for several years before stabilising post-2017. Even after a post-pandemic recovery, real investment in 2021-22 was only 6 per cent higher than pre-Covid levels. More specifically, India’s investment rate, GFCF as a percentage of GDP, remains nearly four percentage points lower than that in 2011-12, despite recent upticks.

The primary culprit? Sluggish private corporate investment. Despite multiple policy incentives, private investment accounts for only about one-third of total investments. Between 2015 and 2020, it largely stagnated, reflecting deeper structural constraints.

For India to sustain GDP growth rates at 7-8 per cent, the investment rate must rise from the current 30 per cent to at least 35 per cent of GDP in the coming years (vis-à-vis. 40 per cent in China), with the private sector playing its part. Empirical evidence underscores that private investment is a more potent driver of long-term economic growth than public expenditure. Unlike government spending, which is constrained by fiscal limitations and potential inefficiencies, private investment is guided by market dynamics, ensuring efficient capital allocation, fostering innovation,........

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