India's real investments outdo GDP growth at 6.9% in FY21-FY25: Crisil

Investment share in GDP stood higher than the decadal average in fiscal 2024-25 in nominal and real terms.

Early indicators for this fiscal signal the Indian government leading capital expenditure (capex) so far, after driving strong growth in the past five fiscals, Crisil said.

Proxy indicators show subdued corporate sentiment in this fiscal, following weak growth in the past five fiscals. Volatility stemming from US tariffs likely hit sentiment, even as healthy corporate balance sheets support fresh investments, the rating agency said in a report titled ‘The Road Ahead for Investments’.

As the government eventually tones down its capex over the medium term with fiscal consolidation, it should focus on reducing regulatory bottlenecks for businesses, it noted.

Relentless reforms can unlock efficiency gains for businesses. In the current uncertain environment, free trade agreements can improve investor confidence by reducing tariff barriers and establishing predictable trade policies, the agency, a unit of S&P Global, said.

The rise in public sector investments comprising central and state governments and public sector undertakings (PSUs) was consistently strong post the pandemic. The rise was the most pronounced in fiscal 2023-24.

The central government capex catered to building infrastructure, led by roads, railways and loans to states. Besides direct capex support, the government also introduced the production-linked incentive (PLI) scheme to support private capex.

Uncertainty surrounding the US tariff hike is the new hindrance to capex decisions this fiscal. As on August 24, US tariffs on India stand higher than peers such as Bangladesh, Vietnam and Indonesia. Investors are also watching the spillover effects of China dumping goods in India.

Lingering domestic inefficiencies like high power and land costs and lengthy dispute resolution remain a hurdle.

Crisil Ratings also noticed opportunities. Healthy corporate balance sheets have improved the ability of corporates to invest. Low non-performing assets place banks favourably to lend. Domestic consumption is holding up.

Opportunities also exist from new trade agreements, it added.

ALCHEMPro News Desk (DS)