The study found that aggregate profit before interest and tax (PBIT) rose 21.4% in FY24, compared with a 6.1% increase in gross fixed assets (GFA), which it uses as an indicator of fixed-asset investment.
Profitability has also improved. Median return on assets among companies covered by the study climbed to 7.2% in FY24 from 4.4% in FY21.
The paper noted that investment has recovered since the pandemic, but the revival has been less pronounced than the recovery in profits. GFA contracted 1.1% in FY21 before expanding 2.2% in FY22, 6.8% in FY23 and 6.1% in FY24.
Over the same period, PBIT increased 15.2% in FY22, 12.8% in FY23 and 21.4% in FY24.
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A key reason for the divergence is that strong earnings from existing assets do not automatically translate into higher spending on new capacity, ToI reported based on the working paper.According to ToI’s report (by Partha Sihna), there are indications that returns expected from fresh fixed-asset investments have weakened in the post-pandemic period, reducing the incentive for companies to commit capital to new projects.
Global economic uncertainty, trade disruptions and the risk of rapid technological changes rendering existing technologies obsolete may also be influencing investment decisions, the paper said. However, the study did not independently establish the effect of demand conditions or uncertainty on investment.
TNNThe analysis found no significant evidence that market concentration or financing constraints were major reasons behind the gap. Nor was there a broad movement towards asset-light business models.
Manufacturing companies, instead, appear to be extracting greater output from their existing fixed assets, suggesting better capacity utilisation. The paper viewed this as a potentially encouraging sign that could support a future investment cycle.
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The investment recovery has also varied across ownership categories. Foreign-owned companies continued to see investment intensity decline from its FY20 peak, while Indian private firms saw their improvement flatten out. Indian business groups recorded a more sustained recovery.
The study used CMIE Prowess data covering 48,896 companies, including 5,614 listed and 43,282 unlisted firms. FY25 was largely excluded because company filings and database coverage for that year remained incomplete.
The paper recommended expanding production-linked incentive schemes and public infrastructure spending to encourage private investment. It also called for stronger support for innovation, closer industry-academia collaboration and quicker resolution of commercial disputes and contract-enforcement cases.