There is huge concentration of wealth and capital in a few hands led by Ambani and Adani. The small and medium enterprises that contribute maximum to national economy as well as creation of employment are in deeper crisis and are getting destroyed. This situation has emerged because India has been allowed to become a play ground for the finance capital, which is nothing but merger of banking and industrial capital.

An analysis of the institution-wise investment data for FY24 reveals that private sector investments declined to a three-year low of 11.2 percent of GDP, which in fact, is lower than the pre-Covid average of 11.8 percent between fiscals 2016 and 2020, indicating weak investment sentiments of the private sector, India Ratings said in a note on March 5, 2025.

Despite the necessary allurements like the presumed success of the various PLI schemes and the other government push for investments by the private sector, it remains the same.

According to the Economic Survey 2025 for the country to reach a developed nation target by 2047, the economy must grow at 8 percent plus on a sustained basis for two decades. This requires an investment rate of at least 35 percent, with the private sector chipping in a leading way. But this looks challenging given the elevated geopolitical risks stemming from renewed tariff wars which may keep investment decisions of private players cautious, along with the falling savings rate of households.

The investment rate, measured by the proportion of gross capital formation to GDP, had languished at 29.9 percent during FY16-FY20 due to a variety of reasons such as difficulties faced in the implementation of projects, high non-performing assets of banks, a weakening domestic/external demand etc. This further slumped to a two-decadal low of 27.5 percent FY21 due to the pandemic. Though post pandemic the investments improved during FY22-FY23, it moderated to 32 percent in FY24.

A glance at the sectoral composition indicates that the slowdown in overall investment rate in FY24 was due to services and industrial sectors. While the investments into the services sector declined to 19.3 percent, in the industrial sector it slid to 10.1 percent in FY24. The investment rate in these sectors declined to 3.1 percent and 6.2 percent in FY24 from 4.3 percent and 6.7 percent in FY23, respectively.

The National Statistical Office has provided detailed data for gross capital formation by households, government, public and private sector and FY24 investment decline was due to the poor show by private and household sectors. It may be pointed out that while investment rate of the private sector was declining, investment by households moderated to 12.8 percent in FY24.

On the other hand, the overall savings rate, which is the nominal gross savings as a proportion of nominal GDP, remained flat at 30.7 percent in FY24. Barring the government, households, private and public sector saw a moderation in their savings rate. Households savings rate has been on a declining trend after reaching a recent peak of 22.7 percent in FY21 and fell to a seven-year low of 18.1 percent in FY24.

Another dampening factor for household savings is the rising financial liabilities, which climbed to a 17-year high of 6.2 percent of GDP in FY24.

According to studies, it has been predicted that this downward trend is likely to continue into fiscal year 2025, with private sector investments potentially dropping below 11percent of GDP. The overall investment rate for FY25 has also been projected to decrease to 31.1 percent, as indicated by the second advance estimates for the year.

The fall of private sector capital expenditure in India in the fiscal year 2024 highlights that weak investment sentiments among private sector players contributed significantly to this decline.

The sluggish performance in these sectors reflects broader challenges in revitalising private sector investment, which is essential for sustainable economic growth.

The combination of factors underscores the need for policy interventions to bolster investment and savings rates across sectors to support India’s long-term economic ambitions.

It may be pointed out that India’s Manufacturing Purchasing Managers’ Index (PMI) fell to 56.3 in February 2025 from 57.7 in January, marking the slowest expansion since December 2023. The decline was driven by weaker growth in output and sales, along with a slowdown in input purchasing to a 14-month low.

Before taking up fall in investment, it may be considered that India’s gross domestic product (GDP) grew by 6.2 per cent in the October-December quarter of financial year 2024-25 (Q3 FY25), an increase from the previous quarter’s 5.6 per cent growth. The rise comes after GDP growth fell to a seven-quarter low of 5.4 per cent in Q2 FY25, significantly below estimates. This uptick was primarily driven by heightened government and consumer spending, bolstered by a robust Kharif crop output and a revival in rural demand.

However the facts bring to light that ninety percent of people in India have no discretionary spending power. The top 10 percent of India’s population remains the primary driver of consumption and economic growth, Indus Valley Annual Report 2025 by Blume Ventures states.

The report notes that this “consuming class” in Asia’s third-largest economy is not expanding in size but rather becoming wealthier, meaning the rich are getting richer while the overall number of wealthy individuals remains stagnant, according to a BBC analysis of the report. (IPA Service)