The Indian economy has not returned to its earlier high investment equilibrium. Despite a decade of corporate tax reductions, insolvency reforms and production-linked incentives, private corporate participation has not regained its former dynamism, writes Saumitra Bhaduri
l The investment rate reset
THE UNION BUDGET 2026 reinforced the government’s infrastructure-led growth strategy by allocating Rs 12.2 lakh crore for capital expenditure (capex), equivalent to 3.1% of GDP. It also announced targeted measures to crowd in private investment, including an Infrastructure Risk Guarantee Fund for public–private partnerships, continued capital support to states and enhanced support for MSMEs and manufacturing. At the same time, budgeted capex growth has slowed in recent years, reflecting a shift toward fiscal consolidations. The next phase of the investment cycle is expected to rely more on private sector participation rather than continued rapid acceleration in government capex.
The macroeconomic context explains why this transition matters. Gross fixed capital formation (GFCF) peaked at 34.31% of GDP in the early 2010s before declining to 27% in FY21. By FY23 and FY24, it recovered to 30-31%, though it moderated to 29.6% in FY25. Real GFCF growth stood at 7.1% in FY25 (down from 8.8% in FY24), with projections for FY26 suggesting growth of 7.8%. On the surface, India appears to have restored its investment intensity. Yet the recovery conceals a structural reset.
l Public surge, private pause
THE PRIVATE SECTOR’S share in GFCF accounted for just 34.4% in FY24. In contrast, the combined share of the central and state governments has risen to above 25% of total GFCF. Between FY22 and FY24, public capex expanded at an average annual pace of nearly 19.7%, compared with 8.7% for private investment. So the intended crowding in has not materialised at scale. Instead, prolonged public dominance raises questions about fiscal sustain-ability and the risk that sustained government borrowing could constrain financial space for private investment.
Moreover, it coincided with markedly improved corporate fundamentals. Thus, the coexistence of healthier finances with subdued capital expenditure suggests that the constraint lies in expectations about durable demand, competitive pressures and policy certainty.
l Green shoots or false dawn?
MANUFACTURING CAPACITY utilisation has recovered to the mid-seventies range. Bank credit to industry has strengthened, and external commercial borrowing and corporate bond markets remain accessible for top-rated firms. Announcements by conglomerates in electronics, renewables, data centres and speciality chemicals suggest some optimism. CMIE’s capex data show new project announcements worth Rs 27.5 lakh crore in the first three quarters of FY26, nearly 15% higher than a year earlier. Yet these shoots remain uneven.
Provisional FY25 data show projects worth about Rs 18.7 lakh crore were announced in the March quarter alone, but the surge was government-led. In contrast, private investment plans were subdued. Overall, private proposals fell 4.61% over the quarter. Thus, while headline investment figures appear robust, they conceal a clear divergence: momentum was driven by the public sector and foreign capital, even as domestic private investment was restrained. Corporate cash balances remain elevated, reflecting a cautious approach.
l Fragmented private investment
WITHIN THE PRIVATE sector’s capex outlays, fragmentation is pronounced. An ICRA analysis of 4,500 listed companies and 8,000 unlisted entities found that while listed corporates increased their capex by 28% in FY23 and 12% in FY24, unlisted entities recorded a contraction in capex in FY24. Despite their stronger momentum, listed firms account for only about
16% of total private corporate capex and just 5% of aggregate domestic GFCF. The visible revival among large firms is therefore too narrow to trigger a broad-based investment upcycle unless the far larger unlisted segment regains confidence.
l From public-led to private-led
INDIA’S CHALLENGE, THEREFORE, is not merely to sustain an investment rate of around 30% of GDP. The government’s decision to moderate capex growth in FY26 heightens the stakes of the transition from public-led to private-led capital formation.The real task is to rebalance investment toward a broader, deeper and more innovation-driven private capex cycle capable of generating durable productivity gains. The policy push has been decisive and sustained. Whether the coming decade restores India’s earlier investment ambition or settles into a more cautious equilibrium will ultimately depend on how corporate India responds to this moment.
The writer is professor, Madras School of Economics