Now Reading: Post-Covid corporate profits grew thrice as fast as investment: EAC-PM
-
01
Post-Covid corporate profits grew thrice as fast as investment: EAC-PM
Corporate profits have outpaced investment growth sharply after the pandemic, an Economic Advisory Council to the Prime Minister (EAC-PM) working paper has found. Profit before interest and tax (PBIT) grew 21.4% in…
Corporate profits have outpaced investment growth sharply after the pandemic, an Economic Advisory Council to the Prime Minister (EAC-PM) working paper has found. Profit before interest and tax (PBIT) grew 21.4% in FY24, while gross fixed assets, a proxy for fixed-asset investment, rose only 6.1%. The median return on assets improved from 4.4% in FY21 to 7.2% in FY24.
The study, based on 48,896 companies, said fresh fixed-asset investment has delivered weaker returns post-Covid, dampening new spending even as existing assets earn well. It found no evidence that market concentration, financial constraints, or a shift to asset-light models explain the gap. Instead, higher capacity utilisation among manufacturers could eventually trigger investment.
Foreign-owned firms showed a falling investment intensity after FY20, while Indian private firms' recovery levelled off. Indian business groups had a more sustained pick-up. The paper recommends expanding production-linked incentives, boosting public infrastructure, and faster contract enforcement to crowd in private investment.
Indian Opinion Analysis
The EAC-PM working paper draws on CMIE Prowess data for nearly 49,000 companies, offering a rare big-picture look at private sector behaviour post-Covid. The core puzzle, profits growing three times faster than fixed investment, has been noted by the RBI in its own reports since FY23. If the marginal profitability of new investment remains weak, the paper's prescriptions (PLI schemes, faster contract enforcement) face a chicken-and-egg problem: sustained public capex has already been tried, as the government raised capital expenditure sharply since FY21. The next test is whether the current high capacity utilisation eventually triggers private investment, or whether uncertainty keeps firms in a wait-and-see mode until global demand, and with it, the investment cycle, turns decisively up. The next round of IIP and core sector data will begin to show which way the needle moves.
Source: timesofindia.indiatimes.com
This brief was synthesised by AI from the source linked above.
