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India's private sector is in a much better position to invest compared to a decade ago, according to a report by Crisil Intelligence.
The financial health of private corporations has significantly improved, giving them the flexibility to undertake new investments. Over the years, private companies have steadily reduced their debt, leading to stronger balance sheets. This has been driven by low capital expenditure (capex), government initiatives to boost infrastructure, fresh equity issuances, and improved capacity utilization. Many companies have also used their profits to pay off debt. The debt-to-net-worth ratio of companies has improved significantly, declining from 1.05 times in the financial year 2015 to an estimated 0.50 times in 2025. This indicates that companies now have ample room to take on new debt for expansion. The financial position of banks has also improved. The gross non-performing assets (GNPA) of banks have fallen from 11.2 per cent in March 2018 to a projected 2.5 per cent in March 2025. This decline has been supported by fewer new bad loans, recoveries from stressed assets, and write-offs. These developments have enabled banks to extend better credit facilities to industries and private firms. The recapitalization of public sector banks, amounting to over Rs 3.3 lakh crore between 2017 and 2021, has helped them to clean up their balance sheets and improve their capital strength. However, deposit growth remains an area of concern and is to be monitored closely. Government policies have also played a crucial role in encouraging private sector investment. The Production-Linked Incentive (PLI) scheme, the Make in India initiative, liberalized foreign direct investment (FDI) policies, corporate tax reductions, infrastructure development, the Goods and Services Tax (GST), and digital public infrastructure initiatives have all contributed to improving the investment climate. On-demand expansion, private consumption, which dipped to 5.6 per cent growth in the financial year 2024 due to weak rural demand, is expected to recover to 7.6 per cent in 2025. This recovery is driven by improved rural demand, supported by good agricultural incomes and lower inflation. However, urban demand has been affected by higher interest rates and stricter lending conditions for unsecured loans. But, despite strong domestic conditions, global uncertainty remains a key challenge for corporate investments. The impact of US President's tariff actions has already led to capital outflows from emerging markets, currency depreciation, and concerns over increased imports from China. These factors create an uncertain investment environment, causing private companies to delay major decisions until more clarity emerges. However, the Indian government is taking enough measures to boost domestic demand and create a favourable investment environment is expected to gradually increase corporate investments. The tax benefits introduced in the budget for the middle class are expected to strengthen domestic consumption over time. Additionally, lower interest rates and controlled inflation will enhance the purchasing power of consumers and enhance demand. However, uncertainty arising from geopolitical developments and tariff actions will keep private corporates cautious about new investments.(ANI)
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