​Domestic vitality: On investment announcements, policy implications

The latest data on investment announcements in the country paint a mixed picture, with varying policy implications. New project announcements by the private sector overall rose to nearly a 15-month high in the first half of this financial year to ₹9.9 lakh crore. Such investments have historically been driven by Indian firms, but that concentration has intensified in the last few years. While Indian firms accounted for 77% of all private sector announcements in 2018-19, that share was 94% in the first half of the current financial year. Taken together, these data points underscore a diametrically opposite outlook on the Indian economy held by domestic and foreign firms. Domestic firms seem increasingly optimistic. It remains to be seen how many of these announcements fructify, but the data show that the value of projects actually completed by Indian firms was also at a near 15-month high so far this fiscal. This should come as a relief to the government, which has been pushing the private sector to invest more. The data also show that most of these new investments are to be in the manufacturing sector — another strong positive for the economy. A large part of these new investments was announced before the GST rate cuts were first made public on August 15, implying the private sector’s confidence goes deeper than an expectation of a temporary demand boost. If the investments do come through, that will leave the government with more fiscal room to address developmental and defence issues, both of which need its attention.

Foreign firms, on the other hand, do not seem quite as convinced by the India story. The value of project announcements by foreign companies fell to ₹0.6 lakh crore in the first half of FY26, marking the third consecutive year of decline during this period, and also a five-year low. Several global factors have certainly dampened investor sentiment ever since the COVID-19 pandemic, but the fact remains that global investment outflows nevertheless increased 11% in 2024 and 3% in 2023. While the latest tariff friction with the U.S. would have shaken some confidence in India as an investment destination this year, the government needs to figure out why foreign companies were looking elsewhere even before. The data also reveal that fresh announcements by the government stood at ₹1.5 lakh crore during the period under review, down 71% over the same period last year. This is in line with the Centre’s warnings that it will not be growing its capex as fast as before. However, with the government and foreign companies pulling back, the pressure on Indian firms increases. Simultaneously, the urgency to keep this momentum going through ease of doing business reforms also sharpens.