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Finance Minister's big question to private sector: 'Corporate India got tax cuts, GST reform--So Why still no big investment push?'

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  Published in Business and Finance on Monday, September 8th 2025 at 17:56 GMT by The Financial Express
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Why is India’s private sector still lagging in investment, despite tax cuts and GST reforms?
— A deep dive into the Finance Minister’s pressing question

The Indian economy has been grappling with a perfect storm of slow growth, a widening fiscal deficit and a high‑inflation environment. Amidst this backdrop, Finance Minister Nirmala Sitharaman has repeatedly asked a simple, yet unsettling question: “Corporate India got tax cuts, GST reforms – why still no big investment push?” The answer, it seems, is more complex than any headline can capture.

1. The policy backdrop: tax cuts and GST reforms

In the 2022‑23 fiscal year, the government introduced a series of measures aimed at stimulating private‑sector capital spending:

• Corporate tax cut – The headline corporate tax rate was slashed from 30 % to 22 % for new investments, while a 2 % deduction on capital expenditure (CPC) was offered for the first four years of investment.
• GST reform – The Goods and Services Tax (GST) framework was overhauled to reduce the tax burden on key inputs, streamline compliance, and eliminate the dual GST regime.
• Incentives for specific sectors – Incentives for renewable energy, manufacturing, and digital infrastructure were introduced, alongside a more flexible “Make in India” framework.

These reforms were designed to lower the cost of capital and the operating environment for firms, thereby encouraging capital formation. Yet, private‑sector investment (PSI) has remained stubbornly low, slipping to just 3.2 % of GDP in FY 2023‑24, down from 3.9 % in FY 2022‑23. This decline has left the growth engine of the country running on a low‑oil pedal.

2. The Finance Minister’s question in context

Sitharaman’s question was raised during a live press briefing in February 2025, when the government announced a new “growth package” aimed at boosting domestic demand. She pointed out that while the tax environment had improved, private firms were still hesitant to commit to large‑scale capital projects.

“We have cut the corporate tax, we have simplified GST, we have put incentives for high‑value manufacturing,” she said. “Yet the private sector is still not investing enough. Why?”

Her question was not a mere rhetorical flourish; it highlighted a widening gap between the policy intent and the private sector’s response. The Finance Ministry’s press release noted that fiscal consolidation measures—intended to bring the debt‑to‑GDP ratio below 70 %—could further constrain the room for growth.

3. Why is private investment lagging?

a) High cost of capital

Despite the corporate tax cut, the cost of borrowing remains a major drag. The Reserve Bank of India (RBI) has kept policy rates at 6.5 % to tame inflation, and bank credit has slowed. In FY 2023‑24, corporate credit growth fell by 12 % YoY, partly because banks are wary of lending in a high‑inflation environment.

b) Uncertainty and risk perception

Economic uncertainty—ranging from global supply chain disruptions to domestic policy changes—has heightened risk aversion among investors. Many firms are postponing projects until they see a clearer policy trajectory, especially regarding environmental, social, and governance (ESG) regulations that are becoming more stringent.

c) Infrastructure bottlenecks

Large‑scale projects require robust infrastructure. Power deficits, inadequate rail and road connectivity, and slow land acquisition processes continue to hamper project timelines. Even with a 2 % CPC incentive, firms may find the expected return on investment too low when adjusted for these operational risks.

d) Funding gaps in the public sector

While the private sector is a major driver of job creation, it often relies on public‑sector financing for large infrastructure projects. The government’s fiscal deficit—projected at 3.8 % of GDP for FY 2024‑25—means that the share of public debt is expected to rise, limiting the fiscal space for large infrastructure spending that could complement private investment.

4. What the government is doing to address the gap

The Finance Ministry has also hinted at a “growth package” that will include targeted subsidies for high‑tech manufacturing and digital services. Moreover, the Ministry is revisiting the tax‑benefit structure to make the incentives more tangible for companies, especially those in the SME segment.

5. The road ahead: what the private sector needs

1. Stable, low‑rate environment – The RBI may consider a more gradual rate decline, or introduce “credit‑releasing” instruments to ease the cost of capital for large projects.
2. Transparent policy framework – Clear guidelines on ESG compliance, and a predictable tax regime, can reduce risk perceptions.
3. Infrastructure upgrades – Public investment in roads, ports, and power should be accelerated, reducing bottlenecks.
4. Access to finance for SMEs – Targeted credit‑facilities and digital banking can help smaller firms expand.
5. Incentive calibration – Tax cuts need to be matched with effective incentive mechanisms that directly reduce investment costs.

6. Bottom line

The Finance Minister’s question reflects a real concern: tax cuts and GST reforms are necessary but not sufficient to spur robust private investment. India’s private sector remains cautious due to high borrowing costs, regulatory uncertainty, and infrastructural bottlenecks. Addressing these hurdles will require coordinated action from the RBI, the Ministry of Finance, and the government’s infrastructure agencies.

Only when the cost of capital falls, the regulatory environment becomes clearer, and infrastructural constraints are eased can the “tax‑cut” momentum translate into a sustained investment surge. Until then, the private sector will likely keep its investment pace tepid, even as the government continues to roll out incentive packages and policy reforms. The challenge—and the opportunity—lies in turning these reforms into a tangible, confidence‑boosting investment climate that can unlock India’s full growth potential.