Paytm founder and CEO Vijay Shekhar Sharma has raised concerns over the significant decline in India's private corporate investment, suggesting that government spending might be increasingly driving the nation's economic growth.
Sharma shared a graphic on X (formerly Twitter) illustrating a sharp drop in private corporate investment from nearly 27% of India's Gross Domestic Product (GDP) in 2011 to approximately 12% by 2026. His post questioned, "Private corporate investment peaked around the 2010s and almost half that level now. Seems like GDP growth heavy-lifting done by government spending. Is it so?"
A Decade of Declining Private Investment
According to the data Sharma presented, the steepest fall occurred between 2012 and 2019, a period often referred to as the "twin balance sheet deleveraging" phase. During this time, private investment plummeted from roughly 24.5% to 13.5% of GDP. Alarmingly, the graph indicated that private investment has not recovered meaningfully even after the COVID-19 pandemic, stagnating between 11.5% and 12.2% of GDP from 2020 to 2026, despite broader claims of economic resilience.
Economists Echo Concerns
Sharma's remarks align with growing apprehension among economists regarding the potential long-term impact of weak private investment on India's growth ambitions. Earlier this week, economist Surjit Bhalla argued that India has increasingly substituted public infrastructure spending for private investment over the past decade.
"What has happened over the last 10 years, we have substituted government investment that is public infrastructure investment for private investment. Our total investment to GDP ratio has stayed almost exactly the same as 32%," Bhalla stated in an interview. He further emphasized that "While we all welcome the government investment, private and foreign direct investment is a lot more productive for the economy than government investment."
Bhalla partly attributed the weak foreign investment to India’s 2015 Bilateral Investment Treaty, suggesting its provisions discouraged potential investors. Former Chief Economic Adviser Arvind Subramanian has also identified weak private corporate investment as a central challenge for the Indian economy, noting it has halved from its peak of 17% of GDP in the early 2000s.
Subramanian highlighted a crucial distinction between governmental "actions taken on paper that affect the costs of doing business" and the "deeper instincts of the government that affect the risks of doing business on the ground," as a possible explanation for investor hesitancy despite reforms.