Indian firms expanded post-pandemic, but investment growth lags earnings recovery

Indian businesses have emerged larger from the Covid-19 pandemic, according to research circulated by the Prime Minister's Economic Advisory Council. The study reveals that the median firm expanded in scale during the post-pandemic recovery period, reflecting growing economic activity across the corporate sector.

Corporate profits demonstrated a strong rebound following the initial pandemic shock, with earnings growth significantly outpacing the broader economic recovery. The sharp improvement in profitability reflects both improved operational efficiency and rising demand as economic activity normalised.

However, the acceleration in investment growth has remained considerably slower than the profit recovery, according to the findings. This divergence suggests that despite healthier balance sheets, Indian companies have maintained a cautious approach to capital expenditure, possibly reflecting uncertainty about sustained demand or macroeconomic conditions.

The analysis underscores a mixed picture of the Indian corporate sector's recovery trajectory. While firms have achieved substantial growth and restored profitability to pre-pandemic levels and beyond, the muted investment response points to potential constraints on medium-term expansion and job creation across the economy.