“Uncertainty and imbalances in the global economy, as well as anticipated sudden technological changes leading to the threat of obsolescence, may be additional contributing factors putting pressure on firm-level investment decisions,” a working paper titled ‘An Investigation Into Corporate Profits and Investment’ said.
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The paper, co-authored by Prof S Mahendra Dev, chairman of EAC-PM; joint directors of EAC-PM Dr Sri Vatsa Sehra and Dr KK Tripathy; and deputy director of EAC-PM Kamil KPS Bhullar, analyses corporate profit and investment in India from FY 2008-09 to FY 2023-24 using firm-level data from the Prowess database of the Centre for Monitoring Indian Economy.
“Addressing the weakness in firm-level investment will need targeted policy support,” it said, adding that the ongoing production-linked incentive schemes (PLI) are theoretically sound but need to be intensified.
The paper also called for intensifying public investment aimed at crowding in private investment. “Public infrastructure investments reduce operational costs and thereby incentivise private investment,” it added.
Calling for policy support to encourage innovation, the paper suggested the need for policy measures to further increase R&D spending and promote industry-academia linkages to pave the way for the establishment and growth of innovative firms.“While the prevailing global uncertainty will remain a challenge in the short term, policy measures to increase the efficiency of contract enforcement and commercial dispute redressal can help reduce overall business uncertainty,” it said, adding that there is a need to intensify existing measures, including those related to alternative dispute resolution.
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According to the paper, gross expenditure on R&D in India was 0.6%-0.7% of GDP in 2025, compared with 3.45% in the US and 2.58% in China.