Persistent Decline in Corporate Investment

(Main Examination, General Studies Paper-3: Indian Economy, Planning, Resource Mobilization, Growth, Development and Employment-related Issues)

Context

Despite consistent growth in India's Gross Domestic Product (GDP), rising public capital expenditure, and an improvement in consumption, the pace of private corporate investment remains sluggish, raising concerns about the long-term sustainability of economic growth.
On June 30, the Ministry of Statistics and Programme Implementation (MoSPI) released the monthly growth rate of the Index of Industrial Production (IIP), which dropped to a nine-month low of 1.2%.

Low Capacity Utilization: Industries are operating at only about 73–75% of their capacity, reducing the immediate need for expansion or increased production.
Weak Demand Scenario: Rural demand continues to remain subdued. Urban consumption is skewed towards the affluent classes, while lower-income groups are still cautious.
High Interest Rates: The Reserve Bank of India's (RBI) tight monetary policy to control inflation has increased the borrowing costs for companies.
Global Economic Uncertainty: Ongoing geopolitical tensions (such as the Russia-Ukraine war and the Red Sea crisis) and recessionary trends in major economies have eroded confidence in export-driven investments.
Focus on Balance Sheet Repair: Post-pandemic, companies are more focused on repaying debt and strengthening their balance sheets rather than undertaking new investments.
Policy and Regulatory Uncertainty: Delays in approvals, frequent changes in compliance norms, and judicial bottlenecks hinder long-term investment planning.

Healthy Corporate Profits: Many listed companies are reporting strong profits, indicating the potential for future investments.
PLI Scheme: New investments are being observed in sectors such as electronics, auto components, and solar equipment under the Production-Linked Incentive (PLI) scheme.
Interest in Digital and Green Sectors: There is growing interest in data centers, electric vehicles, and renewable energy.

Boosting Consumption Demand: Enhance rural income and generate employment to stimulate demand.
Lowering the Cost of Capital: As inflation declines, the RBI may cut interest rates, making borrowing cheaper and encouraging investment.
Policy Stability and Infrastructure Push: Ensure predictable tax, trade, and land acquisition policies, along with continued public investment in infrastructure to attract private capital.
Support for MSMEs and Innovation: Improve access to credit, offer incentives for research and development, and strengthen supply chain linkages.