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Over the past decade, India’s investment mix has seen ups and downs. Public investment, especially in infrastructure, transport and energy, has risen to a quarter of gross fixed capital formation (GFCF); private investment accounts for the rest of this total, but the share of private corporate investment has been in decline. It has fallen from a peak of 41% in 2015-16 to a current 33%. Household investments are important too.
Numbers alone hardly tell the full story. For every stalled factory floor, there’s a startup in Bengaluru rewriting the rules of global technology. For every corporate balance sheet weighed down by old debt, there’s a renewable energy project securing world-class financing.
The story of private investment, then, is not just one of gaps, but of potential waiting to be unlocked. Which is why the conversation must move beyond asking, ‘Why isn’t capital flowing in?’ Instead, we should ask, ‘Where should capital flow for maximum gain?’
To answer this, we must sketch a sectoral picture—where investments have gone and where they must go next. Real estate and professional services dominate India’s capital formation, consistently accounting for about 22% of total investment. Trade, transport and services have been rising too, reflecting India’s consumption-driven growth and expanding logistics. But the flip-side is equally telling.
Manufacturing, while still 16–17% of capital formation, has seen its share decline. Utilities—electricity, gas and water—have fallen from 9.5% to under 6% in the last decade, despite rising demand. India’s growth is service-heavy, but investments in industrial capacity and infrastructure remain constrained.
India’s comparative advantage lies in innovation-led areas: climate finance, digital public goods, health-tech and global supply chain diversification. The world’s largest companies are recalibrating supply chains and India can benefit from these shifts. The apparent contradiction between India’s capital-attracting potential and its declining share of private investment shows that the real challenge is not capital availability, but allocation.
So, how can capital find its best use? Investors are no longer swayed by government incentives alone. They seek certainty, speed and scale. A transparent regulatory environment, rapid dispute resolution and streamlined project clearances can boost private sector confidence.
Global benchmarks of private investment are instructive. South Korea channels 84% of its investment through private markets, while Australia, Japan and the US maintain 80%-plus. China, despite its state-led model, has a much higher GFCF at 41% of GDP, compared to India’s 31%, translating to $390 billion more investment each year.
India’s 75% private share of GFCF is proof that market mechanisms work. S&P Global’s upgrade of India’s sovereign rating to ‘BBB’ reinforces the point: a large domestic economy with cushions for shocks, healthier corporate balance sheets, rising capacity utilization and resilient demand. Together, these should facilitate a revival in private investment, aided by a supportive policy environment that features GST and other reforms.
While the private sector has been investing in sectors like oil and gas, power and automobiles, lifting India’s total investment from 31% to 35% of GDP—as in other fast-growing Asian economies—will require ensuring capital flows to sectors with the highest multiplier effects.
To accelerate private investment, we can adopt proven frameworks. South Korea’s two-tier fund regime tripled venture capital deployment in a decade by calibrating incentives for both mega-funds and small enterprise vehicles. Unlike India’s broad fund-of-funds model, Korea’s approach offers targeted regulatory and tax advantages.
Singapore’s co-investment approach—where its state-run Temasek takes early minority stakes in sunrise sectors—works less as a subsidy scheme and more as a signalling device.
For India, combining Korea’s efficiency with Singapore’s risk-sharing could drive investment in green tech, quantum tech, health-tech and advanced manufacturing. Government funds can offer patient capital and validation, while nudging private investors to scale up. But capital alone is not enough.
We need a sharper R&D thrust, initiated by the government but propelled by private enterprise. At 0.65% of GDP, India’s R&D spend lags China’s (2.68%) and South Korea’s (5.21%). Through better tax incentives, streamlined patents and stronger university-industry linkages, India can steer private research towards strategic areas.
Only then will investment translate to cutting-edge capability and value chain upgradation to position India as a global innovation hub, not just a manufacturing base.
Why does this matter when public capex is so high? Because public investment cannot substitute private dynamism. Every rupee spent on highways or power lines creates conditions for multiple rupees of private investment—factories along corridors, startups leveraging digital infrastructure and exporters tapping new markets.
Without private participation, the multiplier effect weakens. The sooner it flickers back to form, the louder India’s growth engine will roar.
The author are, respectively, director and visiting fellow at Pahle India Foundation.
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