Domestic rating agency Crisil reported on Thursday that Indian industry profits have reached their highest level in a decade. However, despite this strong profitability, there is no significant hope for sustained growth in private sector capital expenditure.
According to Crisil, the profit surge is largely driven by softening commodity prices, and this trend is expected to continue for the third consecutive year in the upcoming financial year (2025-26). An analysis of 800 companies, excluding those in banking, finance, oil, and gas sectors, predicts that pre-tax profit margins will increase to 20% in the next fiscal year.
Government Leads Investment, Private Sector Lags
Over the past few years, the Indian government has been the primary driver of economic investment, fueling growth through public spending. Despite this, corporate capital expenditure remains sluggish. Instead of investing in new capacities, Indian industries have prioritized debt repayment and other financial measures, despite operating at high capacity utilization levels.
During a media interaction, Crisil Chief Economist D.K. Joshi highlighted this reluctance:
“The ability of companies to invest does not match their willingness to invest at this time.”
Income Growth Expected to Rise to 8% in FY 2025-26
Joshi also pointed out that global economic instability and uneven domestic demand are key factors preventing companies from increasing investments. Crisil projects that Indian companies’ income growth will rise to 8% in the next financial year, up from an estimated 6% in 2024-25.
Notably, this growth will not be driven by price increases, but rather by higher production volumes.
Strong Profits, Weak Investments
While corporate profits continue to rise, private investment remains stagnant, signaling a cautious outlook from Indian businesses despite favorable financial conditions. The government’s role in driving economic expansion remains critical, but without a significant rise in private sector capital expenditure, long-term economic momentum could be challenged.
