27/12/2025
Why Corporate India Refuses to Invest Despite Maximum Govt Push?
1. Instead of CapEx, Tech, and R&D investments, Indian firms are investing in stocks & bonds.
2. Stock market returns exceed Return on Assets (ROA). So, who will invest in business?
NIPFP DATA SOLVES THE PUZZLE:
Government Has Made Every Effort to Stimulate Corporate Investment
a. Providing huge liquidity
b. Multiple interest rate cuts
c. Recent GST rate cuts
d. Corporate tax rate cut from 30% to 22% (2019)
NIFPF Data Shows What’s Happening with Private Investment:
Last week, NIPFP (a research institute under the Ministry of Finance) published data that shows:
Private Sector's Rise in Financial Investments Instead of Capital Investments
a. Corporate tax rate cut in 2019 was aimed at stimulating private investment.
b. Total Assets of the companies increased due to big tax savings, but they chose to invest the surplus in financial assets (stocks, bonds, reserves, etc.) instead of investing in plant, machinery, and other physical assets.
c. This is evident from the data which shows the share of net fixed assets (productive assets) as a percentage of total assets has declined, but share of financial assets (stocks/bonds/reserves) has increased.
Outcome After the Historic Corporate Tax Rate Cut in 2019
FY19 to FY25:
a. Net Fixed Assets (capital investments, such as plant/machinery etc.) as a percentage of Total Assets: Declined from 16.5% in FY19 to 9.5% in FY25.
b. Reserves increased from 14.5% in FY19 to 20.0% in FY25.
c. Financial Investments (not capital investments) increased from 21.5% in FY19 to 24.5% in FY25.
In other words:
Making corporate tax rate lower than personal income tax did not fulfill the objective of stimulating investment. It merely boosted company balance sheets with financial assets.
Nifty 50 Returns are Higher than Return on Assets (ROA)
a. Obvious Reason: NIPFP researchers say that the obvious reason for declining corporate investment is that demand (consumption) has been weak in India. But a real-world reason must also be considered as follows:
b. Practical Reason: Average annualized return in the past decade on Nifty 50 and BSE Sensex has been in excess of 10%. In comparison, the Return on Assets (ROA), which is Net Profit as a % of Total Assets has been much lower than stock market returns.
FY13 to FY24:
In almost every year in this period (except during shocks like Covid or Russia-Ukraine war), stock market returns have significantly exceeded the Return on Assets (ROA).
This could have motivated companies to invest in financial instruments instead of investing in business activity.
NIFPF provides the following data:
Annual: ROA vs. Nifty 50 Return
FY17: 5.0% vs. 18%
FY18: 3.0% vs. 10%
FY19: 4.0% vs. 15%
FY20: 2.5% vs. -30% (Covid)
FY21: 5.5% vs. 70%
FY22: 9.0% vs. 19%
FY23: 11.0% vs. -1% (Russ-Ukr)
FY24: 13.0% vs. 28%
With these kind of returns, will you invest your money in business or in the stock market?
RBI Data Corroborates the NFPFP Analysis
RBI Bulletin (Aug 2025) shows:
Corporate Investment in FY24:
₹3.91 lakh cr
Corporate Investment in FY25:
₹3.68 lakh cr
This means from FY24 to FY25:
GDP Growth Rate: 6.5%
Private Investment: (-) 5.8%
Private investment is showing de-growth in the world’s fastest-growing major economy.
India’s GDP Trends FY13 to FY25:
An Increasingly Consumption-Driven Economy (Not Investment Driven)
India’s GDP (Expenditure Side) has 4 components:
a. Consumption (called PFCE)
b. Investment (called GCF)
c. Govt Expenses (GFCE)
d. Net Exports (Export-Import)
From FY13 to FY25:
a. Investment (Gross Capital Formation: Govt + Private: Plant, Machinery, Infrastructure, etc.) contribution in GDP has declined to FY13 levels @ 31.4% in FY25.
b. Consumption (Private Final Consumption Expenditure: food, clothing, housing, transport, healthcare, education, and services) contribution has increased from about 55% to 61.4% during the same period.
c. Net Exports are always negative -2% or -3%, while Government Final Consumption Expenditure (GFCE: salaries, pensions, etc.) hovers around 10 to 11%.
ENDQUOTE: When Stock Market Returns are More Attractive than Real Business Returns
“We do not live in an economy; we live in a Ponzi Scheme.” (A quote published in Arthur Magazine on March 15, 2009 – at the absolute bottom of the global stock market collapse.)
Investment � Idea
