In an analysis titled “India’s growing role in the global economy,” the global rating agency further stated that India’s net general government debt is elevated at about 86 per cent of GDP, and “the government may choose to shore up its balance sheet to build up fiscal buffers.”
It noted that after the pandemic, the country’s recovery has been majorly supported by government building infrastructure and household spending on investments.
The report adds that the private sector, which contributes about 37 per cent to the country’s total investments, is yet to come.
“Government infrastructure buildouts and household investments have supported India’s post-pandemic recovery. A broad-based recovery in private sector corporate investments, which account for about 37% of total investment in India, is yet to materialise,” says the report.
The analysis says that less investment by the private sector is surprising because companies are in a good position to invest. With lower corporate taxes, strong financial health, and the government’s Production Linked Incentive (PLI) scheme, it is surprising that companies are not investing to their full potential.”This is despite the private sector’s enhanced ability to invest, thanks to a competitive corporate tax regime, healthy corporate balance sheets and the government-supported Production Linked Incentive (PLI) scheme,” the report added.However, the report expressed optimism that there are initial signs that the private sector investment cycle is gaining momentum.
“Government investment in infrastructure and the concomitant revival of the housing sector are crowding in private investments in linked sectors such as steel and cement,” says the report.
Private corporate investment is picking up in some emerging segments where the PLI scheme has been introduced.
Electronics and pharmaceuticals are the two success stories. The rating agency said that solar photovoltaic manufacturing and advanced carbon composite batteries are set to be the next big-ticket investments under the PLI over the next couple of years.
“We expect industrial investments to continue gathering momentum in traditional sectors such as steel and cement, as well as in emerging sectors,” the S&P anticipated.