Corporate profits are becoming an increasingly crucial driver of India’s economy. Yet it isn’t a chest-thumping accomplishment in policymaking. If anything, it’s the opposite because those surpluses aren’t being plowed back into new physical assets.
The aggregate net income of listed Indian firms is approaching a record 6% of gross domestic product. Even so, their capital expenditure has remained flat, hovering at 3.6% to 3.7% of gross domestic product.
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The dwindling share of India Inc. in the total pie of national investment is problematic. The good jobs that come with new factories, warehouses, and showrooms are becoming elusive. Since wages support many more people than dividends or stock-market gains, inequality is worsening.
A contrast with neighboring China shines a light on India’s challenge. Listed Chinese-domiciled companies have kept their share of profits in GDP — which at $20 trillion is five times bigger than India’s — steady at about 4%. Yet mainland firms are investing amounts that approach or even exceed their combined net income.
