Key Concepts: Private Capital Expenditure:
Context:
Despite India's real GDP growing by 8.2% and repeated calls by the finance minister for "India Inc" to expand capacity, private corporate investment has remained stagnant
Since 2011-12, private investment has flatlined at around 12% of GDP.
Gross Fixed Capital Formation (GFCF):
GFCF refers to the total investment in the country (acquisition of produced assets).
While overall GFCF as a percentage of GDP has risen, the private sector's share of total investments declined to 34.4% in 2023-24 (the lowest level since 2011-12)
Recent economic growth has been largely driven by public (government) spending rather than a private sector-led boom.
Interest Coverage Ratio (ICR):
A financial ratio used to determine how easily a company can pay interest on its outstanding debt.
A higher ratio indicates better financial health.
The ICR for over 3,000 companies (excluding the financial sector) has more than doubled to 5.97 in the first half of 2025-26
This indicates that companies have used their profits to reduce debt (deleveraging) rather than investing in new production capacities.
Capacity Utilisation:
It measures the extent to which an enterprise or a nation uses its installed productive capacity.
Economists view 75% as the critical level that capacity utilisation must sustain for firms to start investing in new capacity
According to RBI surveys, capacity utilisation in the manufacturing sector has struggled to break past this 75% mark.
Challenges to Investment:
The Federation of Indian Chambers of Commerce & Industry (FICCI) cites rising raw material costs, high interest rates, weak demand expectations, and lengthy approval processes as key hurdles to private investment.