India Inc is flush with cash, but private investment is still missing

Unlisted companies in India are financially stronger than they have been in decades. An analysis of the Centre for Monitoring Indian Economy (CMIE) data, published in this newspaper, showed their debt burden was at a 35-year low, with high interest coverage and healthy profits. These firms, which account for a large share of output, employment, and private investment, include many large, wealthy enterprises such as family-owned industrial groups, infrastructure companies, and Indian arms of global multinationals. Many clearly have the balance-sheet capacity to borrow and invest far more than they currently do. Yet, where these firms are borrowing, it is often to refinance older loans rather than expand capacity. If firms with strong profits, low leverage, and easy access to credit are unwilling to take risks, the problem clearly lies beyond finance. 

An analysis by Icra, released earlier last year, covering 8,000 unlisted companies alongside 4,500 listed ones, shows that unlisted companies are mainly responsible for the slowdown in overall private capex. This caution is, however, not confined to unlisted companies. Across corporate India, profits are strong but investment appetite is weak. Non-financial companies are sitting on cash worth around 11 per cent of their assets. They are increasingly earning from passive sources rather than from core business activities. The share of passive income, including capital gains and other non-operating income, has nearly doubled over the past decade. Among large non-financial firms, the share of physical assets such as plants, machinery, and projects under construction has steadily declined, while financial assets have risen. In other words, profitable firms are choosing to park surpluses in financial markets rather than deploy them in factories, infrastructure, or new capacity. 

This behaviour marks a sharp contrast with India’s earlier investment slowdown. During the 2010s, growth was held back by the twin balance-sheet problem — over leveraged companies and stressed banks. Today, corporate balance sheets are clean, banks are well capitalised, non-performing assets are low, and credit is readily available. However, private investment remains hesitant. Several factors explain this. Demand remains uneven. Urban consumption has softened, rural recovery has been slow, exports are muted, and cheap imports, especially from China, have squeezed margins in some sectors. Notably, companies will invest only if they expect sustained returns, not just strong short-term profits. Further, a growing number of business heirs appear comfortable managing wealth rather than expanding capacity. Besides, usual problems remain. Delays in land acquisition, environmental clearances, and litigation can lock up capital for years. Against this backdrop, buoyant capital markets have made financial investment look safer and more rewarding than investment in the real sector. 

With private investment slow to revive, the burden of sustaining economic momentum has fallen disproportionately on the government. Public capital expenditure, particularly in infrastructure, is doing much of the heavy lifting. However, this cannot continue for very long. The World Bank estimates that to reach high-income status by 2047, India needs to raise investment to around 40 per cent of gross domestic product. That seems impossible without a decisive revival in private capex. The challenge now is not incentives or credit availability but restoring confidence in demand, policy stability, and execution.