India Inc's Cash Hoard Grows as Capex Falters

Private investment's share of India's GDP fell to 10.3% in FY25, a decrease from 10.9% in FY23, according to a National Institute of Public Finance and Policy (NIPFP) paper. This occurred despite substantial corporate profits, tax reductions, and public infrastructure spending designed to stimulate private capital.

Companies are demonstrating a preference for accumulating cash reserves rather than engaging in greenfield capital expenditure. This trend signifies a structural shift in the private investment cycle, with capital increasingly flowing towards sectors like renewable energy, data centers, electronics, and steel.

While the number of new private-sector project announcements more than doubled to ₹104 trillion for FY24-FY26, NIPFP highlights that this does not automatically translate into increased capacity. Project completion and commissioning remain critical factors.

Easing of traditional government-related hurdles has been observed, yet market conditions, geopolitical uncertainties, and promoter risk aversion have emerged as more significant concerns.

Investment in renewable energy, conventional energy, and IT-enabled services rose to 38% of private investment in FY24-FY26. Specifically, renewable electricity projects saw an increase to ₹22.3 trillion, and IT-enabled services, including data centers, jumped nearly fivefold to ₹9.36 trillion.

Steel investments more than doubled to ₹10.83 trillion. Conventional electricity investments nearly tripled to ₹7.48 trillion, and other chemical products rose approximately fourfold to ₹4.7 trillion. The share of distressed projects has significantly decreased to less than 0.1% in FY26.

Bank credit also indicates improving investment activity, with outstanding non-food bank credit reaching around 60% of GDP in FY26. Incremental industrial bank credit saw its highest expansion since FY14, reaching about ₹6 trillion.

Experts note that while private capex is picking up, it hasn't matched record earnings. They suggest that broad-based growth requires aggressive reduction of compliance burdens, especially for SMEs, and addressing foreign investor wariness regarding unpredictability.

Improvements in governance and clearance processes have reduced delays. However, unfavorable market conditions and promoter interests now account for a substantial portion of distressed projects, indicating a shift in the primary challenges facing new investments.