EAC-PM Recommends Support for Innovation & Public Investment

The Economic Advisory Council to the Prime Minister (EAC-PM) has formally recommended intensified targeted support for innovative firms and a boost in public investment.

These strategic interventions are designed to accelerate investment decisions and effectively encourage greater private sector investment across the Indian economy.

Key Economic Indicators

• Aggregate Profits Before Interest and Taxes (PBIT) and firm-level profitability sustained a growth rate of 21.4 per cent in FY24.
• The growth of Gross Fixed Assets (GFA) stood at 6.1 per cent during FY24.

Corporate investment in India demonstrated an upward trajectory until FY20, experiencing a sharp decline during the global pandemic.

While a recovery in corporate investment has since been observed post-pandemic, its pace has been slower and less sustained, particularly impacting foreign-owned firms and Indian private firms.

Global Trends and Investment Challenges

The EAC-PM noted a global pattern where corporate profits and profitability have risen since the global financial crisis, yet investment sentiment remains subdued.

This challenge has become more pronounced following the pandemic, reflecting a broader disconnect between corporate earnings and capital expenditure.

Analysis revealed that high investment levels in FY20 were primarily driven by a significant spike in investment intensity among certain large, asset-rich companies.

This concentrated intensity dissipated during the pandemic and has not reappeared in the recovery phase, contributing to the observed slower rebound in overall investment.

Strategic Policy Recommendations

To address these dynamics and stimulate investment, the EAC-PM’s working paper, ‘An Investigation Into Corporate Profits and Investment,’ outlined several key policy recommendations:

• Intensify existing policy support measures, including production-linked incentive schemes and public investment aimed at crowding in private investment.
• Increase industry-academia linkage to foster innovation and practical application.
• Implement policy measures to enhance the efficiency of contract enforcement and streamline commercial dispute redressal processes.

The council’s insights underscore the necessity of targeted policy actions to re-energize private investment and ensure a robust, sustained economic expansion.