India’s investment rate, though among the highest in the world, has declined to about 31% of GDP as an average of 2015-16 to 2019-2020 from its peak of 39% in FY2012 (CEIC data). Corporate sector accounts for only about half of total investments, amounting to about 15% of GDP. Considering the infrastructure deficit, the government of India has taken several steps to revive private investment e.g., National Asset Reconstruction Company Limited (NARCL), and India Debt Resolution Company Limited (IDRCL) for aggregation and resolution of Non-Performing Assets (NPAs) in the banking industry, Insolvency and Bankruptcy (Amendment) Code 2021, reduction in corporate tax, and the Production Linked Incentive Scheme (PLI), etc. The share of private sector in gross fixed capital formation in India remains muted due to following reasons:

• Institutional issues: As per MoSPI report 2021, out of 1,514 projects (above Rs. 150cr), 384 reported cost overruns and as many as 713 projects were delayed because of issues in land acquisition, delays in obtaining forest and environment clearances, and lack of infrastructure support and linkages.
• Overall global slowdown: In wake of the economic slowdown owing to the COVID-19 pandemic, private consumption expenditure reduced. The supply constraints due to lockdown and high oil prices due to global factors increased the price level and impacted the purchasing power of people. This negatively affected the output of MSMEs as reflected in the reduced demand of bank credit from the MSME sector and decline of share of engineering goods in total exports (from 29% in 2021 to 24% in 2022).
• Twin balance sheets problem: Since mid-2000s, especially after the global financial crisis, both corporates and banks came under stress. Though adequate steps have been taken to resolve the twin balance sheet problem, the Gross Non-Performing Assets of banks still stood at 5.9% in March 2022, though it was a six-year low.
• Issue of capacity utilization: It has been pointed out that the degree of capacity utilization in Indian manufacturing industries has remained below 75% over the years, which may be indicative of low consumption demand in the manufacturing sector leading to a decline in sales.

If India has to achieve 8% plus real GDP growth on a sustained basis, it must revive private investment to over 25% of GDP from the current level of 15%. In budget 2022-23, the capital expenditure has been raised to 35.4% of GDP to continue the public investment-led recovery of the pandemic-battered economy. This, along with the global geo-political situation in Europe, tightening of monetary policy in the USA and relatively stable macroeconomic conditions in India, is expected to create a scenario where India can attract more private investments in the near future.