Corporate profits outpace post-pandemic investment growth in India
A working paper by the Economic Advisory Council shows that Indian companies' profit before interest and tax rose sharply after Covid, while investment in fixed assets recovered more slowly.
According to a working paper from the Economic Advisory Council to the Prime Minister, Indian firms have seen profit before interest and tax climb 21.4% in FY24, while gross fixed-asset growth—a proxy for investment—rose only about 6% that year. Median return on assets rose from 4.4% in FY21 to 7.2% in FY24, reflecting stronger earnings from existing assets. The study suggests that despite higher profitability, the expected returns on new fixed-asset projects have declined, reducing marginal profitability and slowing investment.
It points to global economic uncertainty, trade imbalances, and the risk of rapid technological obsolescence as possible influences, while finding no clear link to market concentration, financial constraints, or a shift toward asset-light models. Investment patterns varied by ownership, with Indian business groups showing a steadier rebound than foreign-owned firms. The paper recommends extending production-linked incentives and boosting public infrastructure to encourage private investment.
Why it matters
Higher corporate profits with lagging investment could affect future economic growth and job creation in India.
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