How Budget 2026 can nudge India Inc into higher capex investments
Record profits but weak investment despite years of incentives underscore why the Centre must confront the real reasons behind Indian corporates' capex inertia
When Finance Minister Nirmala Sitharaman presents the Union Budget on February 1 — her ninth, a record — she will be looking to boost economic growth through multiple levers. While consumption expenditure, measured by Private Final Consumption Expenditure (PFCE), remains the primary growth driver, investment-led growth through capital expenditure — reflected in Gross Fixed Capital Formation (GFCF) — has emerged as the second key engine, followed by exports.
Capex contributed an average of 30 per cent to the GDP (current prices) during FY12-FY26 (Advanced Estimates, or AE). The Centre has done plenty to boost capex for over a decade, but with little success.
What is capex?
Capital expenditure, or capex, refers to the funds a company depolys to acquire, upgrade, or maintain physical, long-term assets to expand capacity or efficiency. This typically includes investments in property, buildings, technology, equipment and so on.
It gave a massive corporate tax cut in 2019 and a series of subsidies, like the Pradhan Mantri Rojgar Protsahan Yojana (PM-RPY) of 2018, Aatmanirbhar Bharat Rojgar Yojana (ABRY) of 2020, Production Linked Incentive (PLI) and Design Linked Incentive (DLI) of 2020, Prime Minister Internship Scheme (PMIS) of 2024 and Employment Linked Incentive (ELI) of 2025, to boost manufacturing and create jobs.
Also read | How Budget 2026-27 can revive consumption for inclusive growth
It has also raised government capex to “crowd-in” private capex since 2023. Except for government capex, all other components are trending downward, well below their FY12 levels (disaggregate data are available until FY24). The graph below maps these trends.
Isn’t it counterintuitive, considering GDP growth is “gangbuster” (the word was coined by former Chief Economic Advisor Arvind Subramanian and his colleagues to describe India’s GDP numbers) and India is the fastest-growing major economy in the world since 2015?
First, a few disturbing developments.
Brimming with cash
The key to a capex push is the private corporate sector. It has been excessively pampered with tax cuts and subsidies but seems reluctant to invest in capex.
Chief Economic Advisor V Anantha Nageswaran and his Economic Survey of 2023-24 panned India Inc for neither investing nor creating jobs or raising wages even while “swimming in excess profits” (15-year-high corporate profits-to-GDP in FY24). Note, private corporate capex has fallen from 16.8 per cent in FY08 (current prices) to 10 per cent in FY24.
Also read: Can Budget fix the damage trade protectionism has done to India’s exports?
Last November, private business information firm CMIE reported that the private sector progressively pulled out projects in the quarter ended September 2025, for the fourth consecutive quarter. It surpassed the previous high pull-out of Rs 13.4 lakh crore in the March 2019 quarter, to end the September 2025 with a Rs 14.3 lakh crore project pull-out.
When 'Hanuman' refuses to fly
In other indications of the malaise, in February 2025, a national daily estimated that the aggregate cash and cash equivalent balances of Nifty500 companies grew 35 per cent in two years, from Rs 10.6 lakh crore in September 2022 to Rs 14.3 lakh crore in September 2024.
Also, last September, a national daily reported that foreign companies pulled out projects worth Rs 2 lakh crore in Q1 of FY26, over 1,200 per cent higher than the corresponding quarter of FY25. This was attributed to the US tariffs.
Having granted their wish for corporate tax cuts and PLIs, Sitharaman gave a pep talk to India Inc in September 2022, telling them how Lord Hanuman had to be reminded of his extraordinary capability to fly. She was gently prodding them to expand their capex.
Also read: Sitharaman: No capital expenditure cut; claims of capex reduction misleading, flawed
Having failed again, she announced plans to push government capex to “crowd-in” private capex in her 2023 budget. That failed, too. Last July, the chairman of the Economic Advisory Council to the PM (EAC-PM), Mahendra Dev, urged corporates to invest, and not sit on cash piles.
Why the resistance?
Both Sitharaman and Dev know well why the private corporate sector is not responding to their entreaties, but won’t admit it. Here are some facts to make that clear.
a) Capacity utilisation in manufacturing is around 75 per cent — not enough to warrant fresh capex in capacity building.
b) Growth in industrial production is very low, and going down further. IIP (Index of Industrial Production) growth averaged 3.4 per cent during FY13-FY25 and 3.3 per cent during April-November 2025 (FY26), well below 8.4 per cent during FY06-FY11. Core IIP growth averaged 4 per cent during FY13-FY25 and is 2.4 per cent during April-November 2025 (FY26), well below 5.6 per cent during FY06-FY11.
Both these factors reflect poor consumption demand, prompting the FM to give income tax relief in the 2025 budget and GST rate cuts from September 2025.
c) Dressed up growth numbers (“gangbuster” growth) fool none. As a result, net FDI inflows are plummeting with repatriation and disinvestment (profit-booking) rising, and so is India Inc’s investments abroad (Outward Foreign Direct Investment, or OFDI). The following graphs map those trends.
e) A far bigger concern should have been — but is not — the sharp decline in the household sector’s capex (see the first graph), which happens to be the largest component of capex (GFCF), averaging 40 per cent of GFCF during FY12-FY24. In comparison, the private corporate sector’s share of GFCF is 36.3 per cent during the same period. Households invest in housing, agricultural land and inputs, livestock, fisheries etc.
Also read: Why India is facing an investment winter despite booming GDP
The sharp fall is because their net assets (physical and financial) fell to a multi-decade low of 18 per cent of GDP in FY24 (up to which data is available), while their debt went up to a multi-decade high of 41 per cent of GDP in FY25.
For decades, the annual Economic Surveys clubbed the capex of the private corporate with that of households to present a “private sector GFCF" that hid the former’s low numbers.
What can a budget do?
Plenty, actually.
Manmohan Singh, who presented the 1991 Budget as Union Finance Minister, demonstrated how one budget can transform the entire economy. Such a transformation is rather easy, but tough to contemplate when a politics-business nexus intensifies and starts feeding on each other to take wealth into their hands.
Assuming an honest effort is to be made, a few transformative policy options can rev up capex and the economy as a whole. Here are some:
1) Focus on actual growth. When growth happens, private corporate capex will flow in uninvited.
2) Raise household income and savings through quality jobs and incentives. Household capex will revive and household savings will provide sufficient capital for long-term investments.
3) Redesign policies to provide free and fair competition to win trust and bring new investments. Blatant crony capitalism kills competition and must be junked at the first opportunity.
4) Some businesses may need fiscal incentives to come up, thrive or compete globally, but these must be conditional and linked to outcomes – a critical gap, as South Korean economist Ha-Joon Chang explained in November 2025, which explains why India failed while Japan, South Korea and Taiwan succeeded. One example: The PLI schemes launched with an outlay of Rs 1.97 lakh crore in 2021 budget but five years later there is no sign of the proposed monitoring dashboard.
5) Suspicion of quid pro quo in policy and practices, which surfaced with the details of electoral bonds in March 2024 and after subsidies for multiple semiconductor projects were approved in 2024, deters new investment. Junk direct corporate funding of political parties, which is neither a global norm nor a good practice. The database of Sweden-based International IDEA shows 124 of 181 countries resort to public funding in different forms; India can study and adopt the one that best suits its conditions.
6) Address regulatory inefficiencies. A recent review of infrastructure projects (‘PRAGATI’) 51 per cent of project delays happened due to administrative lags – a big roadblock for investments.
Recast the entire official statistics to reflect ground realities. Untrustworthy statistics deter honest investment.