India’s economic growth is increasingly being anchored by a long-awaited revival in private investment, with the Economic Survey 2025–26 pointing to a sharp rise in corporate activity and a strengthening domestic investment cycle.
Private corporate investment announcements surged to Rs 14.6 lakh crore in the first half of FY26, more than double the Rs 7.9 lakh crore recorded in the same period last year. The figure also comfortably surpasses the previous decadal peak of Rs 11.4 lakh crore seen in H1 FY24, underscoring renewed business confidence.
The Survey attributes this momentum to multiple converging factors, including strong corporate and banking sector balance sheets, with gross non-performing asset (NPA) ratios at multi-decade lows of 2.2%. It also flags high manufacturing capacity utilisation, which stood at 74.8% in Q2 FY26. Historically, utilisation levels above 75% have tended to trigger fresh capacity expansion by the private sector.
Another key driver has been the “crowding-in” effect of public spending. Sustained public capital expenditure—up 28% year-on-year during April–November 2025—has helped attract private investment, particularly into infrastructure and allied sectors, the Survey notes.
The report further emphasises that recent structural reforms have created a more conducive investment climate. These include the rollout of GST 2.0, notification of the new labour codes, and the opening up of strategic sectors such as nuclear power and insurance—now permitting up to 100% foreign direct investment—to private players.
The micro, small and medium enterprises (MSME) segment has emerged as a key contributor to industrial credit growth, with lending to micro and small enterprises expanding by 20.9% as of August 2025.
Challenges: cost of capital and uncertainty
Despite the positive momentum, the Survey flags the high cost of capital as a persistent structural challenge. India’s dependence on foreign savings to finance its current account deficit necessitates a “risk premium,” which keeps domestic borrowing costs elevated, it says.
It also notes that while large firms have been better able to absorb global “uncertainty shocks” through internal resources, mid-sized firms remain more vulnerable. During periods of heightened geopolitical or policy volatility, such firms often scale back net fixed asset creation.
Reflecting the cumulative impact of higher investment and structural reforms, the government has upgraded India’s medium-term potential growth rate to 7.0%, from 6.5% three years ago.
Looking ahead to FY27, the Survey expects domestic investment to strengthen further as firms fully adjust to recent regulatory changes, providing a resilient buffer against a dim and volatile global environment