The signals have been there. The economy has been slowing. But now the challenges of trade disruption, tepid consumer demand, and insufficient private corporate investment have begun to impact industry performance and corporate results. Things are likely to get worse before they get better if the 50% tariffs on exports to the US kick in by the month end.
Earlier denials have been replaced by some panic. Perhaps the alarm has galvanized the government to announce a 15-August package of Goods and Services Tax (GST) reforms, hoping lower tax will generate higher consumer demand.
Slower growth, profits
A review of company results by business writers show listed companies, for the April-June quarter, witnessed only single-digit growth in revenue; and that is the story for 9 consecutive quarters. Their core profits (excluding other income and one-time gains) has followed the same trajectory, contracting for the second time in 4 quarters. Some companies have gained from the lower energy costs; but the growth leaders -- IT, banking, FMCG, automobiles and pharmaceuticals -- have all shown slowing growth in both turnover and profits.
Combined net sales for these 3,000 or so companies for the April-June period this year rose just 6% from a year ago, the slowest since the June-September 2023 period. This means for the last 9 consecutive quarters, or over two years, the revenue growth has been averaging just 6.9%, slower than the average GDP growth.
There is evidence of a sectoral slowdown too. Eight infrastructure sectors' growth fell to a two-month low of 2% in July 2025 due to a dip in the production of coal, crude oil, natural gas, and refinery products. Growth in these sectors had risen 6.3% in July last year. The production growth was 2.2% in the previous month of June.
Growth was dragged down by five key sectors of coal, crude oil, natural gas, and refinery products, which recorded a decline in output in July. The production growth of fertilizer and electricity moderated to 2 per cent and 0.5 per cent in July from 5.3 per cent and 7.9 per cent in July 2024, respectively. The contraction in output was the sharpest for coal that fell 12.3% in July 2025 from 6.8% in June 2024, the steepest contraction in over five years.
Companies are risk-averse
Unfortunately, the private sector has played the victim card long; and it is time to call it out for evading its responsibilities. Private enterprise is a large for stakeholder in the Indian economy and, while government policies and global shifts impact its performance, the private sector must also invest in future growth rather than sit on its profits and wait for the weather to turn.
This problem of aversion to risk has been underlined by Finance Minister Nirmala Sitharaman. At a recent business event she said though the government had committed two primary tools to stimulate investment: public spending and a dynamic policy to encourage industry, the anticipated acceleration in private sector investment had not materialized. Post 2019, private corporate entities had posted healthier balance sheets, but they continued to “sit on passive investible funds.” In other words, these funds were not deployed to expand operations and capacity.
A report by the Ministry of Statistics and Programme Implementation (MoSPI) supports this assessment, showing that while private sector CAPEX (Capital Expenditure) reached a record high in FY 2024-25, it is projected to decline in FY 2025-26, though still exceeding pre-2023 levels.
UBS Securities’ India report has said this reluctance of the private sector to expand investment is largely to do with the uncertainty surrounding global trade deals. The lack of clarity on international trade is a destabilizing factor for fostering investment. What has remained unsaid is the private sector is risk-averse, and in times of turbulence is content to wait on the sidelines and benefit from relief packages from the government.
The miserly spends by the private sector on R&D is also an eyeopener. In a reply to a parliamentary question, the Ministry of Science and Technology disclosed earlier this month that the R&D expenditure measured in terms of Gross Expenditure on Research and Development (GERD) as a percentage of GDP is just 0.66%. This is minuscule compared to the US (3.5%), China (2.4%), and South Korea (4.8%).
As a percentage of what is spent on R&D too, the private sector invests significantly less compared to major global economies, contributing only about 37% to the total R&D spend. This is much lower than the 68% in the US and 75% in China.
Seeing the writing on the wall, especially the coming impact of the US tariffs, the Union government has once again stepped in to reduce a slew of tax burdens. The new GST slabs will mean most essentials will now be taxed at a standard 5%, while the bulk of products and services will face a levy of 18%. The 12% and the onerous 28% slabs will be eliminated.
The government is hoping a reduced tax burden will enhance consumption and crank up the wheels of the economy. Once again it has fallen on the government to provide the elixir for growth. We don’t know if it will work, but the bigger question is what is the private sector doing to lend a hand?