By Dr Rumki Majumdar
For the past few years, India’s investment story has been driven largely by the government. Roads, railways, ports and public infrastructure have carried growth on their shoulders, with a significant share of spending coming from government coffers.
Despite sustained efforts to nudge private companies to invest, the pickup in private capex has remained modest. Interestingly, this is not because of a lack of risk appetite. Outward FDI has risen sharply by 1.5 times higher this year than last, suggesting that Indian corporates are making strategic investments overseas and expanding footprint.
On the policy front, the government has made meaningful interventions. Corporate tax cuts, manufacturing incentives and a functioning bankruptcy framework have reduced the fear of failure and strengthened balance sheets. This is no longer just theory.
Capital is flowing into future-facing sectors such as renewable energy, data centres, digital infrastructure and AI-ready capacity. Global companies and large Indian groups alike are writing big cheques, signalling that India is increasingly seen as a place to build, not just to sell. That said, there are fewer examples than would be ideal.
The government has also sharpened its industrial push. Subsidies linked to actual production and capital spending have altered behaviour in select sectors such as electronics, semiconductors and batteries. Recent steps to modernise labour laws and roll back restrictive quality control norms on factory inputs may not grab headlines, but they matter. These are the changes that quietly improve competitiveness on the ground.
At first glance, the numbers look encouraging. New investment announcements touched nearly ₹10 lakh crore in the December quarter, with the private sector accounting for a record 92.2% share. Consumption, supported by income-tax and GST relief, is showing early signs of revival. In some pockets, factories are operating close enough to capacity that expansion is becoming unavoidable.
And yet, this is not quite the capex revival many were hoping for.
Scratch beneath the surface and the momentum looks uneven. The overall flow of new investment proposals remains below the average of the past two years. As a share of GDP, private capex is still well below where it stood during earlier growth cycles.
So what is holding companies back?
One answer lies in factors beyond India’s borders. Global trade has become unpredictable. The lack of clarity on a potential India–US trade agreement at a time when India faces one of the highest tariffs on its exports to the US is weighing on boardroom decisions. For export-oriented sectors, it is difficult to commit capital when market access itself feels uncertain.
Closer home, capacity utilization at 75.2%, while improving, has not yet reached levels that typically trigger a broad-based investment boom. Add to this, a weakening rupee, rising energy import costs and modest profit growth, and caution begins to make sense.
Recent surveys show sentiment stabilising, but there is still a lingering pessimism about the broader economic outlook and the investment climate. Fresh geopolitical developments in the middle east and its implications on oil and supply chain only add to the unease.
What will ultimately unlock private capex is supply-side reform.
The government must continue to address bottlenecks and inefficiencies, starting with customs reform and long-pending single-window clearances. Regulatory compliance needs to be simpler and faster, especially for foreign investors and first-time businesses looking to set up operations in India. Equally critical is fixing legacy infrastructure issues such as in the power sector and better service delivery in driving investment decisions.
India’s recent spree in signing trade agreements is a great step forward to bring in broadening market for our exports and diversify investment. Yet many remain underutilised due to information gaps and procedural complexity. Businesses are looking for certainties around returns, process predictability, and efficient execution at home and these need to be addressed to attract private investment.
Dr Rumki Majumdar is an economist at Deloitte India
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.