LATE last year, Rajesh’s manager told him, “The job market is very bad. So, listen to me. Work much harder, spend more time at work.”
That night, Rajesh broke the news to his wife, Madhu, who always complained about the long hours he kept. “We have to get a car,” Rajesh said. “That will save an hour off my commute.”
“I’ll ask Savita to stop coming,” Madhu said. “As it is, she only does one hour of dusting and takes Rs 6,000. I will do it myself, and we can use that money for our car EMI.” She wasn’t entirely unhappy. Doing a little more housework was a small price to pay for the car she had wanted for a long time.
Redirecting spending from consumption to investment — what Rajesh and Madhu were planning — is exactly what companies do when they invest a larger part of their profits in machines and equipment, or increase their office and factory space.
Governments do that too, to boost economic growth. They invest in building railroads, highways, ports and airports. They invest in human capital, by spending on education and health, or even by giving subsidies to improve the lives of the poorest among the working people.
An economy grows faster when all three — households, private companies and the government — invest more for the future. And the opposite — falling overall investments — makes economic growth falter.
Most mainstream economists want developing countries, like ours, to invest a larger proportion of national income every year. And within that, they prefer that the private sector invest the lion’s share. This is because higher investment is needed to keep growing fast, and the private sector is believed to be less wasteful in deploying its hard-earned profits.
Whether one agrees with this view is irrelevant here. What matters is that successive governments in India have organised their economic policies within this neoliberal framework. Have these policies succeeded in increasing capital investment, especially from the private sector?
The answer, unfortunately, is no. In 2011-12, the year many economists identify as the beginning of the moderation in our growth trajectory, capital investments — captured in a measure called Gross Fixed Capital Formation (GFCF) — stood at 34% of our GDP. In 2025-26, it dropped to 30%. (I have used the old GDP series to make a consistent comparison.)
What is worse is that the share of private firms in this has dropped sharply over the years. Ten years ago, in 2015-16, for instance, private investment accounted for 41% of the overall capital investments in the economy. In 2024-25, the last year for which we have data, this had dropped to just 32%.
Data from the Centre for Monitoring Indian Economy (CMIE), India’s premier private data agency, suggests this has deteriorated further in 2025-26. Interestingly, the government sector’s share hasn’t risen either. In fact, it fell marginally, from 26% ten years ago to 25% in 2024-25.
The heavy lifting is being done by households and self-employed people. They have invested in building homes and in buying transport equipment and other small machinery. These are also counted as investment — or, to be precise, ‘capital formation’ — when a country’s GDP is calculated. Ten years ago, they accounted for 33% of overall investments. That has shot up to 43% now.
If we look at the productive assets built, ten years ago ‘dwellings, buildings and structures’ — factories, offices, houses, roads, bridges and so on — accounted for 53% of all assets. In 2024-25, that rose to 58%. Machinery, which made up 34% of all new assets, has dropped to 31% in the same period. This confirms the thesis that much of India’s capital investment over the past decade has been in building infrastructure. In fact, even the machinery being produced is oriented towards the infrastructure sector. This is a crucial indicator of the direction in which our economy is headed. The data confirms what some of us have been arguing for some time — that India’s growth is overwhelmingly being driven by government expenditure on infrastructure.
You might ask: what is wrong with that? For the past two decades, we have been told that when a country invests in infrastructure, it sets the ball rolling for sustained economic growth. The first thing it supposedly does is generate direct jobs for engineers, project managers, supervisors and thousands of construction workers. Then it boosts demand for goods needed for building infrastructure — steel, cement, concrete slabs, heavy equipment, cranes, and so on.
These industries, in turn, hire more people to meet this increased demand. All these newly employed people now have more money in their hands, generating new demand for consumer goods and services. And all this happens while a proper network of roads, highways, waterways and ports is created for accelerated industrialisation and the faster movement of goods and labour.
But none of that has actually happened. If we compare 2019-20 — the year before Covid-19 — with the present, the combined expenditure on infrastructure by the Central and state governments has grown at a whopping 15% per year. In the same period, the CMIE’s employment surveys show, employment in real estate and construction has risen at a measly 1% annually. What is more alarming is that, in the key feeder industry of cement, tiles and construction materials, employment has actually fallen.
This is in spite of robust 6.6% annual growth in cement output, and massive capacity addition in the cement industry. Much of this has been achieved by increasing labour productivity rather than hiring more workers.
Effectively, therefore, government infrastructure contracts have only fattened the bottom lines of big corporates instead of acting as an overall driver of growth. This has also meant that private investment has been restricted to those industries that feed infrastructure projects. There is no incentive to invest anywhere else. That is why, even though India’s economy is growing, we don’t ‘feel’ it on the ground.