Why in the News?

• Indian private capital is being urged to refocus on domestic investment as experts highlight that sustained economic growth now depends on strengthening internal demand, job creation, and innovation amid rising global uncertainties.

What’s in Today’s Article?

• About Indian Capital (Introduction, Need for Refocus, Strengthening Domestic Base, Innovation Ecosystem, Road Ahead, etc.)

The Evolving Role of Indian Capital

• Indian private capital has been a cornerstone of the nation’s economic progress, from building industries in the post-independence era to leading the globalisation wave after 1991.
• Liberalisation allowed Indian firms to expand abroad, acquire global assets, and compete internationally. However, this global focus must now recalibrate.
• With rising geopolitical tensions, trade disruptions, and shrinking export demand, global markets are no longer as stable or rewarding as before.
• In this context, Indian capital must redirect its focus toward domestic investment to fuel internal growth, create jobs, and sustain India’s ambition of becoming a $10 trillion economy by 2036.

The Need to Refocus on Domestic Investment

• India’s growth story today is largely being driven by public investment, while private sector capital expenditure remains sluggish.
• The government’s capital outlay rose from Rs. 3.4 lakh crore in FY20 to Rs. 10.2 lakh crore in FY25, growing at an impressive 25% annually. Yet, private investment as a share of GDP has remained stagnant, hovering around 22-23%.
• Interestingly, Indian corporations have increased their outward foreign direct investment (FDI) at a faster rate, growing by over 12% annually in the last five years, while global FDI has slowed.
• This reflects a continued tendency among Indian firms to seek opportunities abroad rather than within India.
• However, global economic fragmentation, coupled with India’s strong domestic fundamentals, robust infrastructure push, demographic dividend, and policy stability, makes domestic reinvestment a far more viable and strategic option.

Strengthening the Domestic Economic Base

• Driving Inclusive Growth through Wage Expansion
  • Corporate profits in India are at a 15-year high, yet real wage growth has remained stagnant. This imbalance between profits and wages has constrained household demand, weakening one of the key engines of sustained growth.
  • As per recent estimates, real wages are projected to rise by only 6.5% in FY26, even as productivity and profits climb higher. The growing trend of contractualization in the formal sector further limits wage bargaining power.
  • For India’s growth to be inclusive and self-sustaining, businesses must ensure steady wage growth and job creation, especially in labour-intensive sectors like manufacturing, textiles, and services.
  • Higher wages expand domestic demand, creating a virtuous cycle of consumption and investment, something India urgently needs amid a slowing global trade environment.
• Boosting Private Investment and Innovation
  • Private investment has historically been the backbone of India’s industrialisation. However, in recent years, risk aversion, corporate deleveraging, and global uncertainties have led to a cautious investment stance.
  • Yet, the policy environment is now among the most favourable in decades:
    • The corporate tax rate has been reduced to 22% (15% for new manufacturing firms).
    • The Production-Linked Incentive (PLI) scheme covers 14 sectors, offering Rs. 1.97 lakh crore in incentives.
    • Significant improvements have been made in logistics, digital infrastructure, and ease of doing business.

• Indian firms must seize these conditions to increase domestic capex, not just in core industries but also in emerging sectors such as green energy, semiconductors, electric mobility, and digital technologies.

Strengthening India’s Innovation Ecosystem

• India’s research and development (R&D) spending remains low at 0.64% of GDP, compared to 2-3% in advanced economies like the U.S., Japan, and South Korea.
• The private sector contributes only about 36% of India’s total R&D expenditure, while governments and public institutions account for the rest.
• In contrast, in developed nations, over 70% of R&D spending is funded by private enterprises.
• To remain globally competitive, Indian companies must significantly increase their R&D investments in manufacturing, AI, biotechnology, and green technologies.
• The success of economies like South Korea and China demonstrates that private innovation, supported by public policy, can transform a developing economy into a high-tech manufacturing hub.

Aligning Private Capital with National Priorities

• India’s long-term growth will depend on how well private capital aligns with national economic objectives.
• The government has already built the foundation through infrastructure upgrades, fiscal discipline, and investment-friendly reforms. Now, the private sector must:

• Reinvest domestically in manufacturing and innovation instead of pursuing offshore acquisitions.
• Partner with public programs like the National Infrastructure Pipeline and green transition initiatives.
• Support regional development by investing in emerging states and tier-2 cities to decentralise economic growth.

• Public capital has carried India’s growth momentum so far, but for long-term sustainability, private capital must take the lead. By investing at home, Indian businesses can not only secure better returns but also help strengthen the country’s socio-economic foundation.

The Path Ahead

• India’s economy is at a crucial inflection point. With steady GDP growth above 7%, strong foreign reserves, and rising infrastructure investment, the country is well-positioned for an economic leap.
• However, to maintain this trajectory, domestic private investment must accelerate and complement public spending.
• Focusing on domestic markets will not only reduce vulnerability to external shocks but also enhance self-reliance, employment, and innovation.
• The private sector’s contribution to inclusive, sustainable growth will determine whether India’s economic rise remains resilient in an uncertain global environment.