What will it take for India's private companies to begin investing in building new factories and firms?
It's a question that's confounded policymakers for years. As a share of gross domestic product (GDP), private investment in India has been on the decline since the global financial crisis of 2007, even while the overall economy clocked world-beating growth rates.
After a long hiatus, the investment rate picked up slightly in 2022 and 2023, but latest data from a leading ratings agency shows private sector expenditure as part of the overall investments in India's economy dipped again to a decadal low of 33% this financial year.
Analysis from Icra of 4,500 listed companies and 8,000 unlisted companies reveals that while the pace of investments made by listed players moderated, those by unlisted entities actually contracted.
Over the years, several economists have raised similar concerns about a slowdown in private investments.
Banking tycoon Uday Kotak is among many who've raised concerns recently about India's fading "animal spirits", urging young business owners who had inherited companies to build new businesses rather than sitting tight and managing their existing wealth.
Data from investment advisory firm Value Research shows Indian non-financial businesses were sitting on cash worth 11% of their total assets, corroborating the view that companies are not spending money in making fresh investments.
So why are Indian corporate houses choosing to do that?
Weak domestic consumption in urban areas, muted export demand and an influx of cheap Chinese imports in some sectors were among the factors that "restricted the capacity expansion plans of Indian corporate houses", Icra's Chief Rating Officer K Ravichandran said in a note.
But beyond the more immediate reasons, private investment impulse has been low because of "global uncertainties and overcapacity", India's economic survey pointed out earlier this year.
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