Thursday

04


September , 2025
India needs more private investment to achieve 8% growth
11:31 am

Madhusudhanan S


The signs of economic deceleration have become evident, with trade disruptions, subdued consumer demand, and lacklustre private corporate investment now impacting industrial performance, and which is visible in corporate results/outcomes. Things will likely get worse, particularly if the proposed 50% tariffs happen.

In response to the urgency of the situation, the government announced a package of Goods and Services Tax (GST) reforms on 15 August, aiming to boost consumer demand by reducing taxation.

Slowdown in Growth and Profits Earning of Private Sector

Company results analysis reveals a slowdown in growth, with publicly listed companies reporting single-digit revenue growth for the ninth (9th) consecutive quarter in the April-June period.  Core profits have also declined, excluding additional income and one-time gains, affecting leading sectors like IT, banking, fast-moving consumer goods, automobiles, and pharmaceuticals. Profitability has suffered due to a slowdown in growth, as the combined net sales of roughly 3,000 businesses rose by just 6% between April and June, 2025. For the past two years, revenue growth has been averaging 6.9% over 9 consecutive quarters, which is slower than the average GDP growth.

Sectoral growth slowdown is evident, as the key Eight Infrastructure Sectors shows the decline in growth rate compared to 2024-25 (April-July). Out of Eight Key Infra-structure Six (6) infrastructure growth are showing a decline as per August, 2025 data.

Private sector entities have shown a risk-averse attitude, failing to invest in future growth despite healthier balance sheets. The government’s efforts to stimulate investment have not yielded the expected surge in private sector investment, highlighting the need for proactive steps from the private sector to contribute to economic growth.

Need for Private Investment in R&D sector

The Private Sectors investment in Research and Development (R&D) is also concerning, with R&D expenditure as a percentage of GDP significantly lower than other major economies like US, EU and China.

The private sector in the developed economies are responsible for the most of the R&D spending. In the US (70%), EU (57%), and China (79%) is responsible for most of the R&D spending. They also carries out much of the government-funded R&D.

By comparison, India’s private sector contributes a mere 36% to the country’s overall R&D spending. India’s R&D-to-GDP ratio shows a considerable deficit, which highlights this difference. Despite this, India’s government’s research spending is similar to that of the US and China.

Conclusion

The government has taken steps to alleviate the tax burden and stimulate the economy by reforming GST. However, the private sector also needs to contribute to economic growth. If India have to achieve a sustainable growth of 8% then there is a need for increased private sector investments. Therefore, it is imperative for private investments to drive economic growth by increasing their investments.

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