Arguably, nothing would have revealed the Centre’s apparent disappointment with tepid private corporate capex growth better than what Finance Minister Nirmala Sitharaman and Chief Economic Advisor Anantha V. Nageswaran said on the last two days of February 2025. Their observations need attention.

On February 27, 2025, the FM was asked at a fireside chat in New Delhi about why private corporate capex had not taken off as expected, despite the corporate tax cut of 2019 and quantum jump in government capex and PLI subsidies. She said: “I strongly believe the Indian corporate sector is the best judge of investment and commercial assessment – of when to put the money and how much to put…What I am missing is why the corporate sector is not speaking about it. The answer is not for me to give. The answer either way has to be heard from the industry itself. Tell us why not if you are not doing it; tell us if you are doing it – why this question remains unanswered?”

This statement marks both continuity and departure from her September 2022 peptalk to industry in New Delhi (the ‘Hanuman’ speech): “If it is not sort of impertinent to say this now, I equally would want know from the Indian industry what is it that they are hesitant about…Since 2019, when I have taken charge of the finance ministry I have been hearing – the industry doesn’t think it is conducive (for investments)…Alright, bring the rate down; the (corporate) tax rate was brought down…. Give production linked incentive – we have given PLI. I want to hear from the India Inc. what is stopping you?”

The second observation came a day later on February 28, 2025 while the CEA was briefing the media on the second advance estimates for FY25 and Q3 data for FY25. He said: “It is a bit of a paradox that uncertainties elsewhere isn’t really coming in the way of the Indian private sector increasing its outbound FDI…And, therefore, all the more reason for the Indian private sector to invest in a country whose current growth record exceeds the growth performance of other economies and also whose prospects for continuing at this rate at the minimum of 6.5% is much better than it is elsewhere.”

The CEA quoted the RBI data to say that outward FDI from India Inc. jumped during April-January of FY25 to $11.3 billion, against $7.7 billion in the corresponding period of FY24 (excluding outbound loans and guarantees). A couple of months earlier, in December 2024, he had called out India Inc. for “creeping informalisation” (contractual hirings) and low wages despite high profits (4X rise in profits in four years and profit-to-GDP hitting 15-year high). He called it “self-destructive” (depresses demand for the very goods and services it produces).

Investment and growth: Multiple paradoxes

For better understanding of the ground realities, one must look at investment data not for just private corporate entities but overall investment scenario.

1. Private corporate capex: ‘Realised’ private corporate capex or private GFCF remains subdued. It fell from the peak of 16.8% of GDP in FY08 and 11.9% in FY18 to below 11% during FY19- FY23 up to which data is available (all in current prices). It has remained below 12% in the entire period of 2011-12 GDP series. As for “intentions” to invest, the RBI’s February 2025 bulletin shows, it is up 8.5% during the first three quarters of FY25, over the corresponding period of FY24. The RBI’s January 2025 bulletin observed that private corporate capex “intentions” was “yet to show visible signs of pick-up” but its October 2024 bulletin was more nuanced. Pointing at Q1 of FY25 data (which showed a marked improvement over Q1 of FY24) it said, investment intentions saw “deceleration” from “non-finance companies” and “real investments” in plants and machinery “remained subdued”.

2. Total government capex: The Centre’s capex has jumped in recent years but the combined “realised” government capex (GFCF) – total capex of the Centre, states and public corporations – fell below 7% of GDP during FY20-FY22 before bouncing back to 7% in FY23 (up to which data is available). These were below the peak of 7.5% in FY16 (all in current prices). The combined government GFCF contributes least (average of 7% of GDP during FY12-FY23) – the highest is by household sector (average of 12.1% of GDP or 40.2% of total GFCF), followed by private corporate sector (average 10.9% of GDP).

3. Household capex: Maximum GFCF comes from (private) household sector (average of 12.1% of GDP or 40.2% of total GFCF during FY12-FY23). Yet it is often ignored. In FY23, it was 12.9% of GDP, which was less than the peaks of 15.7% in FY12 and 14.6% in FY13 (all in current prices). This fall reinforces weakening of household incomes (due to the shocks of demonetisation, GST and pandemic lockdown) – with overall savings (physical and financial) plunging to 18.4% of GDP in FY23 (up to which data is available), from the highs of 23.6% in FY12 and 20.3% in FY19. This weakening economic health of households is also reflected in the widening of gap between growth in bank deposits and credit which the RBI has flagged for years.

4. Bank credit outflow: Credit outflows have bounced back to double-digits in FY23 and FY24 but these are driven by personal loans for consumption, not demand for production of goods and services by the industry and services sectors. The RBI annual data (FY19-FY24) shows (i) credit outflows (amount) for personal loans overtook credit flows to services in FY20 and to industry in FY21 – and continued till FY24. It also shows (ii) the surge in personal loan is due to distress mortgaging of golds and credit card dues. In H1 of FY25, gold loans grew at 43.4%, far higher than other components. The RBI tried to check growth in unsecured loans, but it had to withdraw its higher risk weights for bank loans to NBFCs and MFIs on February 25, 2025. At the same time, the RBI has also slashed repo rate by 25 basis points to infuse liquidity and more rate cuts are expected in April 2025 – pointing to lack of sufficient lending.

5. FDI inflows: As against persistent pullout by FPIs since October 2024, which is hot-money expected to move out when market sentiments change (more of it later), FDI inflows are long-term investments and better marker of investment environment. The DPIIT data up to December 2024 shows, equity FDI inflows fell by 2.3% in FY22, by 20.2% in FY23 and by 3.7% in FY24. In FY25 (April-December), equity FDI is 90% of FY24.

6. FPI pullout: Hot-money, FPIs, are fleeing India since the beginning of October 2024 – leading to prolonged bear run in stock markets. At the beginning of the pullout, Finance Minister Nirmala Sitharaman had asked at a public function in Washington on October 26, 2024: “What is holding the investors back?” This was a change from her earlier stance to FPIs as she had declared in the Parliament on April 4, 2024: “FIIs and FPIs may come and go but today the Indian retail investors have proven that any shock that may come in is now taken care of because of the shock-absorbing capacity the Indian retailer has brought into the Indian market.” That didn’t happen, which she explained at a post-budget discussion in Mumbai on February 17, 2025: “FIIs also go out when they are in a position to book profits. The Indian economy has an environment today wherein investments are yielding good results and profit-booking is happening.” The FPI pullout is understood to be driven by falling corporate profits, depreciation in rupee, relatively high US bond yields and the US’s threat of “reciprocal” tariffs etc.

In short, all the above evidence and data point to weakening investment scenario. There is yet another factor to consider.

Does industry need to invest more?

Two other data, industrial production (IIP) and capacity utilisation in manufacturing (CU), are critical determinant of capex.

7. Industrial production (IIP): The MoSPI’s latest data show, overall IIP growth and that of manufacturing IIP have fallen to 4% each in FY25 (April-December) – from 6.3% and 5.7%, respectively, in the corresponding period of FY24. These numbers are well below GDP growth of 9.2% in FY24 (FRE) and 6.5% in FY25 (AE2).

8. Capacity utilisation in manufacturing (CU): The RBI data shows, after having risen to 76.4% in Q4 of FY24, CU has fallen to 74% each in Q1 and Q2 of FY25 – pointing to inadequate capacity utilisation (demand). It is nowhere close to the previous highs of about 80% in FY10-FY12.

Interestingly, Nagesh Kumar, external member of the RBI’s MPC, said the RBI’s repo cut in February 2025 was prompted by “a concern about the weaknesses of the manufacturing sector”.

The above two factors too point to insufficient need for fresh capex.

What ought to change?

Going by the above evidence and data, it would be clear that GDP growth must go a notch higher – from average of 6.2% in the 14 fiscals of FY13 to FY25 (AE2) – particularly by boosting consumption demand to bring higher investment.

This would call for raising the income levels of a vast majority. It is known that post-reform and post-liberalisation India has seen inequality in income and wealth rise (for more, read Fortune India’s “Rising-tide is not lifting all in India), which has continued in the form of K-shaped post-pandemic recovery.

Two new reports need attention in this context.

One is from venture capital firm Blume Ventures (Indus Valley Annual Report, February 27, 2025), which said (among others): (i) only the top 10% or 30 million are the “consuming class” (‘India 1’) which is driving India’s economic engine but this group “is not widening as much as deepening” (no expansion in base, the same set getting richer) and (ii) about 1 billion (100 crore) or ‘India 3’ “doesn’t have the kind of incomes to be able to spend anything on discretionary goods”.

The other is from the Marcellus Investment Managers, which in its January 2025 report (“India’s Middle Class is Losing Ground to the Rich & the Poor”) said: “The middle 50% of India’s tax paying population has seen its income stagnate in absolute terms over the past decade. This implies a halving of income in real (i.e., inflation adjusted) terms.”

But here is a caveat.

Anantha V. Nageswaran

Why private capex remains below expectations