Profits Are Up, Investment Isn't. What The PM’s Advisers Missed

By Prasanna Mohanty

What? 

India’s private investment has a problem. Corporate profits have surged, but companies are still reluctant to invest.

The Economic Advisory Council to the Prime Minister (EAC-PM), in a working paper released on August 12, suggested doubling down on two policies the government has already been using — production-linked incentives (PLI) and public investment.

The recommendations are puzzling.

The council’s analysis showed that private corporate investment has been weak despite years of higher government spending and the rollout of PLI schemes. But instead of asking why those policies have not delivered a stronger private investment response, it recommended more of both.

Other recommendations, such as supporting innovative firms, strengthening industry-academia links, and improving mechanisms to enforce contracts and resolve business disputes, are hardly new. Economists and industry experts have long argued for them.

The more consequential recommendations are the first two. And the evidence presented in the paper does not make a strong case for either.

Why? 

The EAC-PM’s case for its recommendations was partly based on what its firm-level data show.

The median firm, the council said, has become larger since FY21 in terms of capital employed, PBIT, revenue, employee costs, average total assets and changes in gross fixed assets. This has also been accompanied by an improvement in firm-level returns on average assets.

But that does not necessarily mean companies are ready to make fresh investments.

Abhishek Anand, former World Bank economist and visiting fellow at the Madras Institute of Development Studies, said, “The EAC-PM result says that the median surviving firm in its sample has become larger and more profitable. That establishes that returns on existing corporate assets have improved. It does not establish that the expected return on a new, irreversible investment – after accounting for policy and regulatory risks – is sufficiently attractive.”

Meanwhile, so far India’s production-linked incentive (PLI) schemes have only found success in the mobile phone assembly industry. 

Economist R Nagaraj, who wrote a paper on declining industrialisation and investment last year, said that “corporate profits have boomed ever since corporate tax rates were reduced in 2019, but the increased profitability has not translated into increased corporate investment”.

Nagaraj said it was “difficult to agree” with the recommendation to push PLI incentives, as even in the mobile phone assembly industry “there seems to be very little evidence of backward integration in production of components to augment domestic value addition”. 

Why It Matters 

The EAC-PM played down the role of aggregate demand (by not separately analysing its impact while recognising its role in reviving manufacturing’s capacity utilisation), which is known to be critical for investment in capacity building.

Consumption expenditure began slowing before the pandemic, following demonetisation and the introduction of the goods and services tax, and remained weak thereafter. Yet the report does not separately examine its impact on private investment.

Capacity utilisation provides another clue.

RBI data showed that capacity utilisation had risen to 74.8% in FY24, the latest year examined by the EAC-PM. That was an improvement, but it also meant that a meaningful amount of existing capacity remained unused. It was well below the roughly 80% levels seen during FY10-FY12.

A 2024 Confederation of Indian Industry report said fresh investment would be triggered when capacity utilisation reached 75-80%. 

That threshold has since been reached, with capacity utilisation averaging 75.3% from Q1 FY25 to Q4 FY26. That could strengthen the case for a private investment revival if the trend continues for more time.

But it also raises another question of whether companies are only now reaching the level of capacity utilisation that industry considers conducive to fresh investment. Was the problem earlier a shortage of incentives or insufficient demand?

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77%

That’s the percentage of companies, surveyed by real estate group CBRE, that expect their India office portfolios to expand over the next two years, pointing to continued confidence in office demand despite the rise of hybrid work and AI. CBRE surveyed more than 200 CXOs between April and June 2026 for its eighth India Office Occupier Survey.

Fast Facts: 30% of companies plan to increase their office footprint by more than 30% over the next two years, up from 18% in last year’s survey.

67% expect flexible workspace to form part of their office portfolio within two years, up from 58% currently.

70% say commute infrastructure is a priority when selecting office locations, while 95% identify traffic congestion and commuting as a threat to operations and employee experience.

Meanwhile, 93% of respondents say their organisations are at some stage of AI adoption. Yet 57% say AI has not had a measurable impact on their leasing strategy so far.

The Lead: The survey suggests AI is influencing the kind of office space companies want more than the amount they require. Companies are seeking workplaces that support collaboration, technology-intensive work and employee experience, rather than simply cutting their physical footprint.

This is also driving a flight to quality, with companies seeking better buildings, amenities and connectivity. Around 40% of occupiers are concerned about the availability of quality office space through 2028, according to CBRE.

Overall, the findings point to an Indian office market demanding more and better space.

EV Shift Deepens Skills Crunch

India's push toward electric vehicles (EVs) could further deepen a shortage of skilled workers, as the auto component industry faces mounting competition for manpower and raw materials from fast-growing sectors like data centres and renewable energy, according to a report by the Automotive Component Manufacturers Association (ACMA) and BCG.

Overview: The skills challenge is changing shape as vehicles grow more complex. Skilled manpower for electronics, software and mechatronics, which are critical to EVs, is hard to find. Automakers are also asking suppliers to move beyond simple manufacturing into design and development work. This means the shortage is here to stay. In fact, 60% of component companies say manpower shortages are among their biggest challenges, the report said.

ACMA president Sriram Viji told The Core that skilling, exports and localisation remain key priorities for the industry, adding, "There is a competition for talent in this country. The country is growing... automation is a necessity, but it's not just robots and automation; it is also improved productivity on the existing shop floor."

Future: Despite this, demand for the industry remains strong. ACMA Director General Vinnie Mehta said business has been good through the first quarter and July, with automakers' order schedules pointing to continued growth through the festive season.

Govt Stands By GDP

The government defended India’s 7.8% GDP growth estimate for the April-June quarter, rejecting concerns that revisions to earlier data had artificially boosted the latest growth figure. The clarification follows scrutiny of the new GDP series, including questions over unusually low price deflators and how methodological changes affect estimates of real growth.

Flashpoint: The Core recently highlighted that 7.8% real GDP growth came alongside just 2.3% growth in the GDP price deflator, while some major sectors recorded exceptionally low implied deflators. The story estimated that real Gross Domestic Income, which accounts for changes in the terms of trade, grew by only 3.2-3.6%, partly because higher import costs eroded purchasing power.

The Turning Point: The government said revisions reflect improved data, updated methodologies and routine statistical processes, not an effort to lower the previous year’s base and inflate current growth. It also defended double deflation in manufacturing and said GDP deflators need not track CPI or WPI.

JioHotstar Goes Global

India's largest video streaming platform is expanding overseas for the first time, launching in the UK, Canada and Singapore from September 2, Bloomberg reported.

JioHotstar, operated by JioStar, a joint venture between Walt Disney and Reliance Industries, is targeting the South Asian diaspora, which has grown to more than 37 million people worldwide.

Fast Facts: The platform has more than 500 million active users in India and will offer over 160,000 hours of content in more than 12 languages.

Among its biggest draws overseas will be Bigg Boss, India's version of Big Brother, which reached more than 500 million viewers across six language editions in 2025, with engagement rising 47% year-on-year, according to JioStar.

Canada is home to about 3.2 million people of Indian origin, the UK 1.3 million and Singapore 483,000, Bloomberg reported.

Background: Hollywood content from Disney and HBO Max will not be available on JioHotstar outside India, as licensing agreements are limited to India.

The platform is betting that its cricket coverage, reality shows and AI-powered personalisation can convert diaspora viewers into higher-value subscribers, a market India's fiercely competitive streaming sector has largely left untapped.

Dubai Fuelling India's Gold Bill

India's gold bar imports jumped 47.1% from $7.5 billion in April-June 2025 to $11 billion in April-June 2026, even after import duty was raised from 6% to 15% in May.

According to a report by the Global Trade Research Initiative (GTRI), the UAE was the primary driver of this surge, not the rest of the world.

Context: In June 2026, gold imports from the UAE rose 175.2% to $649.4 million, while imports from all other countries fell 17.7% to $1.32 billion.

For the full quarter, UAE imports more than doubled, up 124.8% to $3.14 billion, growing more than four times faster than the rest of the world.

The UAE's share in India's gold imports jumped from 18.7% to 28.5% in a single year, GTRI said.

Forecast: The UAE is not a gold-producing country, but under the India-UAE Free Trade Agreement, gold can enter India at 14% duty against the standard 15%.

GTRI's Ajay Srivastava argues this one-percentage-point advantage is enough to encourage importers to route gold through the UAE, and calls on the government to review the concession, especially as Prime Minister Modi has asked citizens to cut unnecessary gold purchases.

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