India’s economy is estimated to have grown by 6.3% during FY 2024-25. World Bank’s estimate suggest that the economy is likely to expand by a similar rate in the ongoing financial year (FY 2025-26). Both these growth figures are much lower than the annual average growth seen during FY 2021-24. So the recent slowdown does point towards some challenges for India economy. Country’s energy sector is also likely to feel the impact considering its strong linkages to the overall economic conditions.
One of the reasons for India’s falling growth rate is the weakness in private sector investment which has been under pressure for several years now. Government led investment push however has provided a good support to the overall investment rate in the country for the past several years. This trend picked-up pace post COVID-19 pandemic, when the government came at forefront to prop-up investment in sectors such as roads, ports and other infrastructure projects. These initiatives also provided a good support to oil and gas consumption in the India. During FY 2024-25, the overall investment rate in the country was around 30.1%.
As per estimates, between FY 2019-2023, the cumulative growth in private sector non-financial GFCF stood at 52% in current prices. Meanwhile, the cumulative growth in CAPEX spending by government including the states was 64%, over the same period. India’s energy-sector PSUs have also been very aggressive with their CAPEX spending.
Reasons for weak private sector investment in India:
- Global weakness
- Geopolitical uncertainty
- Rising interest rate in international markets
- Weak consumer spending because of high inflation
What is the future outlook of private investment in India?
- The financial conditions of several private companies in India have improved over the recent years with debt repayment and they are sitting with adequate cash. This is likely to create more room for investment.
- The financial conditions of banks have also improved. The gross NPA of banks of have fallen from 11.2% in March 2018 to a projected 2.5% in March 2025, supported by fewer bad loans, recoveries from stressed assets, and write-offs.
- Several government-led initiatives like PLI scheme, Make in India campaign, tax deduction from the latest budget etc. also bodes well for India’s private sector investment outlook.
However, the recent tariff announcement by Mr. Donald Trump has created a lot of uncertainty in global markets. The real impact of it is difficult to predict at this movement considering his tariff on/off behavior. Nevertheless, private sector investment is crucial for India to achieve its ambition of becoming a high-income nation by 2047. As per the World Bank, key to this would be to increase investment rate in the country to atleast 40% of GDP, compared to 30% currently. It goes without saying that overall improvement in investment climate will also be conducive for energy sector growth in the country.
