Indian companies have seen a rapid rebound in profits post-pandemic, but investment remains subdued, signalling caution amid global uncertainties and muted domestic demand.
Corporate profits in India have rebounded far faster than investment since the pandemic, according to a working paper from the Economic Advisory Council to the Prime Minister. The study says profit before interest and tax rose 21.4% in FY24, while gross fixed assets increased only 6.1%, underscoring a gap between stronger earnings and a still-muted capital spending cycle.
The paper found that companies are using their existing assets more efficiently. Median return on assets climbed from 4.4% in FY21 to 7.2% in FY24, suggesting firms have been extracting more revenue from current operations. But higher profitability has not automatically led to fresh plant and equipment spending, with the study arguing that the expected returns on new fixed-asset investment have weakened.
That caution fits a broader pattern seen in other recent research. A Reserve Bank of India study reported that corporate profits almost tripled after the pandemic, reaching ₹7.1 trillion in FY25 from ₹2.5 trillion in FY21, helped by pent-up demand, manufacturing resilience and stronger balance sheets. Yet the RBI also noted that weak economic conditions in 2019-20 and the pandemic had sharply reduced sales and profitability before the rebound.
Investment behaviour remains uneven across company types. The Economic Advisory Council paper said foreign-owned firms have seen investment intensity fall since its FY20 peak, while Indian private firms levelled off after an early recovery and business groups showed a steadier rebound. It also said the investment peak in FY20 was distorted by a handful of large, asset-rich firms, a pattern that has not returned.
Recent reporting suggests the caution has continued. Business Standard said Indian companies are still favouring financial investments over capital expenditure, with financial assets rising faster than net fixed assets in FY26. The broader backdrop includes subdued domestic demand, moderate capacity use and global uncertainty. To help restart private investment, the Economic Advisory Council recommended stronger production-linked incentives, more public infrastructure spending and closer links between industry and academia.
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