India needs to step up public investment to attract private investments: Working paper by EAC-PM

Synopsis

Corporate profits and investments in India have recovered after the pandemic. Investment recovery has been slower due to limited innovative firms and profitability pressures. Targeted policy support is needed to encourage private sector investments. Intensifying public infrastructure and R&D spending can boost business confidence. Improving contract enforcement will also reduce overall business uncertainty.

India needs to step up public investment to attract private investments: Working paper by EAC-PM

New Delhi: Corporate profits and investments in India have recovered after the Covid-19 pandemic but investment recovery has been comparatively slower due to the limited presence of innovative firms and downward pressure on firm-level investment amid a decline in marginal profitability, a working paper by the Economic Advisory Council to the Prime Minister (EAC-PM) said, suggesting targeted policy support to crowd in private investments.

“Uncertainty and imbalances in the global economy as well as an anticipated sudden technological change leading to the threat of obsolescence may be additional contributing factors putting pressure on firm-level investment decisions,” said the paper titled ‘An Investigation Into Corporate Profits and Investment’.

The paper, co-authored by Prof S Mahendra Dev, chairman of the EAC-PM, joint director of the council Sri Vatsa Sehra, its joint secretary KK Tripathy and deputy director Kamil KPS Bhullar, analysed corporate profit and investment in India from 2008-09 to 2023-24 using firm level data from the Prowess database of the Centre for Monitoring Indian Economy.

“Addressing the weakness in firm level investment will need targeted policy support,” it said, adding that the ongoing production-linked incentive schemes are theoretically sound but need to be intensified.

The paper also called for intensifying public investments aimed at attracting private investments. “Public infrastructure investments reduce operational costs and thereby incentivise private investment,” it said.

Calling for policy support to encourage innovation, the paper suggested the need for policy measures to increase research and development (R&D) spending and promote industry-academia linkage to pave the way for establishment and growth of innovative firms.

“While the prevailing global uncertainty will remain a challenge in the short term, policy measures to increase the efficiency of contract enforcement and commercial dispute redressal can help reduce overall business uncertainty,” it said, adding that there is a need to intensify existing measures including those related to alternative dispute redressal.

According to the paper, gross expenditure on R&D in India in 2025 was 0.6- 0.7% of gross domestic product, much less than 2.58% in China and 3.45% in the US.