Private Sector Investment Trends in India
The private sector investment in India is expected to decline further in the current financial year after reaching a three-year low in FY24. This trend was highlighted in a research note by India Ratings.
Investment Rate Trends
- The private sector investments were at 11.2% of GDP in FY24, which is lower than the pre-Covid average of 11.8% from FY16-FY20.
- The investment rate, represented by the gross capital formation (GCF) as a proportion of GDP, was 29.9% from FY16 to FY20.
- In FY21, this rate fell to a two-decadal low of 27.5% due to Covid-19 impacts but improved during FY22-FY23. It moderated to 32% in FY24 and is expected to decline to 31.1% in FY25 according to the second advance estimates.
Challenges and Economic Survey Insights
- Challenges include project implementation difficulties, high non-performing assets in banking, and weakening demand.
- The Economic Survey 2023-24 indicates that to become a developed nation by 2047, India needs sustained growth of over 8% for two decades with an investment rate of at least 35%.
- Geopolitical risks and falling household savings, which are crucial for investment financing, make achieving this target challenging.
Sectoral Investment Analysis in FY24
- Overall slowdown attributed to:
- Services sector decline by 20 basis points to 19.3%.
- Industrial sector decline by 10 basis points to 10.1%.
- Services sector decline majorly due to reduced investments in 'trade, repair & hotels, restaurants' and real estate services.
- Sub-sectors with strong investment push: 'transport', 'storage', 'communication', 'public administration & defence', and other services like education and health.
Industrial Sector Insights
- Mining and electricity were significant drivers of investment in FY24.
- Construction sector investment was 2.6%, higher than the FY16-FY20 average of 1.9%.
- Manufacturing sector faced declining investment rates, reaching a three-year low of 5% in FY24.
- Production-linked incentive schemes have been emphasized but demand weakness hinders investment recovery.