Opinion Economy is in a sweet spot. But private sector is not picking up the baton

The Indian economy, at one level, is in a sweet spot. The Narendra Modi government has done well to significantly reduce and rationalise goods and services tax rates this month. That was on top of exempting individuals earning up to Rs 12 lakh annually from paying any income tax in the 2025-26 Union Budget and slashing corporate tax rates in September 2019. In addition, the Centre’s own capital expenditure on public infrastructure and other investment has more than trebled from Rs 3,35,726 crore in 2019-20 to a budgeted Rs 11,21,090 crore in the current fiscal. And its flagship Production Linked Incentive Scheme and the India Semiconductor Mission have attracted investments, notably in mobile phone manufacturing by the likes of Apple and Samsung (exports alone were worth $24.1 billion in 2024-25, albeit with only limited domestic value addition) and the half-a-dozen chip fabrication, assembly, testing and packaging projects in various stages of execution.

It’s not just the government. Indian corporates, which underwent a painful process of de-leveraging through the 2010s and beyond, have comfortable or low debt service and debt-equity ratios with sizeable cash buffers today. At the same time, the gross and net non-performing asset ratios of commercial banks have declined to multi-decadal lows. In other words, the twin balance sheet problem, which was a major drag on India’s growth not too long ago, is now history. Add to these the low levels of consumer price inflation — 2.1 per cent overall year-on-year and minus 0.7 per cent for food in August — and the environment of soft interest rates with enhanced credit availability, things cannot be better for fueling a virtuous cycle of investment, jobs, incomes and spending. A recent Reserve Bank of India study of envisaged capital investments by private corporates, based on both bank and non-bank financing sources, shows the total cost of such projects to have risen from Rs 1,96,580 crore in 2021-22 to Rs 3,51,351 crore, Rs 5,47,734 crore and Rs 4,97,235 crore in the following three fiscals.

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But somehow, all these intentions don’t seem to be translating into concrete execution on the ground. At the end of the day, the government is the one that has done the heavy lifting, whether through policy or actual spending. There are limits to how much more it can do. For some reason, the private sector — be it companies or even households — is not picking up the baton by investing and spending more. What is holding them back? It could be general uncertainty (over demand, in the case of the former) and insecurity (over jobs, for the latter), compounded by the Trump tariffs and ongoing geopolitical disruptions. The result is flagging animal spirits, for which policy stability and staying the course, not quick-fixes, are the answer.