The report analysed corporate profit and investment in India from FY 2008-09 to FY 2023-24 using firm level data extracted from the Prowess database provided by the Centre for Monitoring Indian Economy.
The data showed that corporate investment was on an increasing trend till FY 2019-20 before falling sharply during the pandemic.
Corporate profits had also registered robust growth in FY 2019-20 before showing a slight contraction the next year.
Post-pandemic, recovery of aggregate profits before interest and taxes (PBIT) and firm level profitability has been sustained. The growth rate of aggregate PBIT was 21.4 per cent in FY 2023-24.
Corporate investment has also recovered, but the recovery has been slower and less sustained. The growth of gross fixed assets (GFA) was 6.1 per cent in FY 2023-24. The slower recovery was particularly relevant for foreign owned firms and Indian private firms.
Although both corporate profits and investment have recovered after the pandemic, investment recovery has been comparatively slower, the paper said.
The limited presence of innovative firms could be contributing to the pattern, it said.
Firm-level investment is also facing downward pressure amid a decline in marginal profitability. 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, the paper noted.
The likely improvement noted in capacity utilisation among manufacturing firms is a positive feature that may incentivise firms for a next round of investment, it said.
Addressing the weakness in firm level investment will need targeted policy support, the paper suggested.
Ongoing PLI schemes aim to support scale expansion by improving marginal profitability and are theoretically sound. Public investment aimed at crowding in private investment also needs to be intensified. Public infrastructure investments reduce operational costs and thereby incentivise private investment, it said.
Policy support for innovative firms is also important. The most often cited impediments for their emergence are historically low R&D spends and persistent skill and innovation gaps, the paper said.
Gross expenditure on R&D in India was 0.6 per cent – 0.7 per cent of GDP in 2025 (Ministry of Science & Technology 2026). In contrast, R&D expenditure in the United States and China (in 2023) was 3.45 per cent and 2.58 per cent of GDP respectively (UNESCO Institute for Statistics (UIS) 2025), it noted.
However, there are encouraging developments including a progressive increase in budget allocations for scientific departments and research-oriented programmes, launching of the Research, Development and Innovation Fund, establishment of Anusandhan National Research Foundation, and launching of various critical missions such as the India Semiconductor Mission, the paper said.
The share of private sector in R&D spends has also been increasing, it said.
Policy measures aimed to further increase R&D spending and promote industry-academia linkage may pave the way for establishment and growth of innovative firms, the paper said.
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. Existing measures being taken including those related to alternate dispute redressal, need to be intensified, it said.
