Revolutionizing Indian Credit: The Unified Lending Interface (ULI)

 Revolutionizing Indian Credit: The Unified Lending Interface (ULI)

India's financial landscape is on the cusp of a significant transformation, driven by the government's visionary initiative: the Unified Lending Interface (ULI). Much like the Unified Payments Interface (UPI) revolutionized digital payments, ULI aims to democratize credit access, offering a wider choice for borrowing to millions of bank customers. With over 50 fintechs already onboarded, this ambitious program promises to reshape how Indians borrow and lenders operate.

At its core, ULI is a digital public infrastructure (DPI) designed to streamline and accelerate the lending process. It acts as a centralized data exchange, facilitating the seamless and consent-based flow of financial and non-financial data from various sources to lenders. Built on an open architecture with standardized Application Programming Interfaces (APIs), ULI enables a "plug-and-play" model for banks, Non-Banking Financial Companies (NBFCs), and fintechs alike.

 

What is ULI?

The Unified Lending Interface (ULI) is a digital public infrastructure (DPI) and a technological platform designed to streamline and accelerate the lending process in India. It acts as a centralized data exchange mechanism that facilitates the seamless and consent-based flow of financial and non-financial data from various sources to lenders. Similar to the Unified Payments Interface (UPI) that transformed payments, ULI aims to transform the lending space.

It operates on an open architecture supported by standardized Application Programming Interfaces (APIs), enabling various financial institutions (banks, NBFCs, fintechs) to connect effortlessly in a "plug-and-play" model.

What are its objectives and benefits?

Objectives of ULI:

Wider Choice for Borrowing: To offer bank customers a broader range of borrowing options by connecting them with multiple lenders.

Enhanced Financial Inclusion: To make credit more accessible to underserved populations, particularly small businesses (MSMEs), rural borrowers, and those with thin or no credit histories.

Streamlined Lending Process: To simplify and expedite loan application, processing, and approval, reducing paperwork and turnaround times.

Improved Credit Assessment: To enable lenders to make more accurate and informed credit decisions by providing them with a comprehensive 360-degree view of a borrower's financial health.

Reduced Operational Costs for Lenders: To automate key lending steps, thereby lowering administrative expenses and increasing efficiency.

Increased Transparency: To bring consistency and clarity to loan terms and conditions, eliminating hidden costs for borrowers.

Foster Competition and Innovation: To create a more competitive lending environment and encourage the development of new, tailored lending products.

Benefits of ULI:

For Borrowers:

Faster Loan Approvals and Disbursements: Significantly reduced waiting times due to automated processes and instant data verification.

Simplified Application Process: Less paperwork and a more convenient, digital application experience through omnichannel access (web portals, mobile apps).

Wider Access to Credit: Enables individuals and businesses previously underserved by traditional lenders to access formal credit.

Transparent Loan Offers: Ability to compare loan offers, terms, and interest rates from multiple lenders on a single platform.

Improved Customer Experience: Overall better experience due to efficiency, convenience, and transparency.

For Lenders:

Improved Credit Underwriting: Access to comprehensive financial and non-financial data (credit bureaus, bank statements, tax records, land records, milk pouring data, satellite imagery, GSTN data, Account Aggregators, Digilocker, etc.) allows for better risk assessment.

Reduced Operational Costs: Automation of processes like pre-qualification, risk analysis, and document verification reduces manual work and administrative overhead.

Expanded Market Reach: Ability to serve new segments of borrowers (e.g., farmers, MSMEs) who were previously difficult to assess.

Enhanced Decision-Making: Leveraging AI and machine learning for data analytics helps identify market trends and optimize lending strategies.

Seamless Integration: "Plug-and-play" model with standardized APIs simplifies integration with existing CRM, ERP, and core banking systems.

Regulatory Compliance: Helps ensure compliance with regulatory requirements by automatically checking borrower data and streamlining reporting.

What are the modalities of the operation?

The ULI operates as a backend platform that connects various stakeholders in the lending ecosystem through a consent-based, API-driven architecture. Here's a breakdown of its modalities:

Consent-based Data Sharing: The fundamental principle is borrower consent. Borrowers explicitly grant permission for their data to be accessed and shared with lenders through the ULI platform.

Data Integration and Aggregation: ULI integrates with numerous data sources and custodians, including:

Credit Bureaus

Bank Statements and Account Aggregators

Tax Records (e.g., GSTN data)

Digital Identity (Aadhaar, PAN, e-KYC, e-Sign)

Government Databases (e.g., digitized state land records, property search services)

Alternative Data Sources (e.g., milk pouring data from milk federations, satellite imagery for agricultural loans)

Digilocker for verified documents.

Standardized APIs and Open Architecture: The platform is built on an open architecture with standardized APIs. This allows various financial institutions and data providers to seamlessly "plug and play" into the system, avoiding complex bilateral integrations.

Automated Loan Processing: ULI leverages AI and machine learning for automation of key lending steps:

Application Submission: Borrowers apply for loans through a single interface.

Document Verification: Automated verification of submitted documents using OCR and AI-based fraud detection.

Creditworthiness Evaluation: The system pulls and analyses data from integrated sources to assess creditworthiness.

Loan Offer Generation: Based on risk assessment, the platform generates tailored loan offers.

Disbursement and Repayment: Integrated payment gateways facilitate quick loan disbursements and streamlined repayment collections.

Omnichannel Access: Borrowers can access ULI through various platforms like web portals, mobile apps, and API integrations, ensuring convenience.

Focus on Specific Use Cases: While broadly applicable, ULI is particularly focused on sectors like agriculture (e.g., Kisan Credit Card loans, dairy loans) and MSMEs, where credit access has traditionally been challenging due to fragmented data and lack of formal documentation.

Evolving into a Marketplace: ULI is envisioned to evolve beyond a data exchange into a credit marketplace, potentially offering white-labelled front-end access channels and facilitating co-lending arrangements.

 

Issues in Implementation of ULI.

The successful implementation of a transformative initiative like the Unified Lending Interface (ULI) in a diverse and complex country like India faces a multitude of challenges. These challenges span technological, regulatory, social, and economic dimensions. The following are the issues in implementation of ULI.

Data Security and Privacy Concerns: This is paramount. ULI will centralize and facilitate the sharing of vast amounts of sensitive personal and financial data. Any breach or misuse of this data could have catastrophic consequences for individuals and erode public trust in the system. Ensuring end-to-end encryption, robust access controls, continuous vulnerability assessment, and compliance with evolving data protection laws (like India's Digital Personal Data Protection Act, 2023) will be an ongoing battle. The complexity also lies in how liability is assigned across multiple entities (Regulated Entities, Lending Service Providers, Digital Lending Apps) when data privacy violations occur.

Regulatory and Compliance Complexities: India's financial sector is highly regulated. ULI needs to seamlessly integrate with existing regulations, and potentially new ones, across various lending products, borrower segments (e.g., agriculture, MSME), and types of lenders (banks, NBFCs, fintechs). Harmonizing differing state-level regulations, especially for data like land records, adds another layer of complexity. Constant vigilance is required to ensure that the "plug-and-play" nature doesn't inadvertently lead to regulatory arbitrage or non-compliance.

Integration with Legacy Systems: Many traditional banks operate on decades-old, monolithic legacy IT systems. These systems are often not designed for real-time data exchange, API integration, or the agile development practices that ULI necessitates. Integrating ULI with such diverse and often rigid legacy systems is a significant technical and financial undertaking, requiring substantial investment in infrastructure, system upgrades, and specialized IT talent. This can be time-consuming and prone to compatibility issues.

Standardization Across Lenders: Each lender has its unique underwriting models, risk assessment criteria, and loan product offerings. Achieving a level of standardization in data exchange and API calls while allowing lenders the flexibility to maintain their proprietary credit assessment methodologies is a delicate balance. Without sufficient standardization, the "unified" aspect of ULI might be diluted, leading to fragmented integrations and reduced efficiency.

Data Quality and Consistency: The effectiveness of ULI hinges on the quality and consistency of data flowing from various sources. Issues like incomplete data, errors in existing databases (especially in government records), inconsistent data formats, and outdated information can severely hamper accurate credit assessment and lead to erroneous loan decisions. Ensuring data cleansing, validation, and real-time updates across numerous disparate sources is a monumental task.

Interoperability Issues: While ULI aims for an open architecture with standardized APIs, achieving true seamless interoperability among hundreds of financial institutions, dozens of data custodians, and various government departments is challenging. Differences in interpretation of API specifications, varying levels of technical maturity among participants, and unforeseen technical glitches can create friction points and hinder smooth data flow.

Digital Literacy and Adoption: A significant portion of India's population, particularly in rural and semi-urban areas, still has limited digital literacy. Many potential borrowers for whom ULI is intended (e.g., small farmers, informal sector workers) may not be comfortable using digital platforms, or may lack access to smartphones or reliable internet connectivity. This can impede widespread adoption and limit the benefits of ULI for financial inclusion.

Resistance to Change: Both within financial institutions and among some borrowers, there can be resistance to adopting new digital processes. Traditional lenders might be wary of sharing data, altering established workflows, or facing increased competition. Borrowers might prefer familiar manual processes due to lack of trust in digital systems, fear of technology, or concerns about privacy.

Cybersecurity Threats: As a centralized digital public infrastructure handling vast financial data, ULI becomes an attractive target for sophisticated cyberattacks, including data breaches, denial-of-service attacks, and ransomware. The system needs to be designed with multi-layered security protocols, continuous threat intelligence, and rapid incident response capabilities to protect against evolving cyber threats.

Fraud Detection and Prevention: While ULI can improve credit assessment, the digital nature of the platform also opens new avenues for sophisticated fraud. This could include identity theft, synthetic identity fraud, loan stacking (taking multiple loans simultaneously from different lenders), or manipulation of digital documents. Robust AI-driven fraud detection systems and continuous monitoring are critical to mitigate these risks.

Dispute Resolution Mechanisms: With a complex ecosystem involving multiple parties and automated processes, disputes related to data inaccuracies, loan terms, application rejections, or technical failures are inevitable. Establishing clear, efficient, transparent, and timely dispute resolution mechanisms that are easily accessible to both borrowers and lenders is crucial for building trust and ensuring fairness.

Scalability: India's population and economic activity are immense. ULI must be designed to scale rapidly to handle millions of trans          s daily and accommodate a continuously growing number of users and participants without compromising performance, speed, or reliability. This requires robust cloud infrastructure, efficient processing algorithms, and a flexible architecture.

Cost of Implementation and Maintenance: The development, integration, deployment, and ongoing maintenance of such a large-scale and complex digital infrastructure require substantial financial investment. Ensuring the long-term sustainability and funding models for ULI, while keeping costs manageable for participating entities, is a significant challenge.

Lack of Coherent Data for "New-to-Credit" Borrowers: While ULI aims to leverage alternative data (e.g., utility payments, mobile phone usage, social media activity), building accurate and reliable credit risk models for individuals with little to no formal credit history (the "new-to-credit" segment) is still a nascent area. The availability, quality, and predictive power of such alternative data can vary, making underwriting for this segment challenging.

Willingness of Lenders to Lend: Even with enhanced data and streamlined processes, the ultimate decision to lend rests with the financial institutions. Their lending appetite is influenced by factors beyond ULI, such as their risk-weighted capital requirements, regulatory directives, profitability targets, and overall economic conditions. ULI facilitates credit assessment, but it cannot force lending where lenders perceive high risk or low profitability, particularly for high-cost, small-ticket loans to underserved segments.

Way Forward : Strategies

Robust Cybersecurity and Data Privacy Framework:

Implement a "Security-by-Design" and "Privacy-by-Design" approach from the ground up, integrating the highest standards of encryption (e.g., end-to-end encryption for all data in transit and at rest), multi-factor authentication for all access, and granular access controls.

This includes establishing a dedicated cybersecurity team with expertise in financial systems, conducting regular and independent security audits (e.g., penetration testing, vulnerability assessments), and developing a comprehensive incident response plan. Compliance with the Digital Personal Data Protection Act (DPDP Act, 2023) and other relevant regulations is non-negotiable. Building public trust through transparent privacy policies and clear communication on data usage is vital.

Phased Rollout and Pilot Expansion:

Instead of a big-bang approach, continue with controlled pilot projects focusing on specific loan types (e.g., agricultural loans, small business loans) and geographical regions.

 Each pilot phase should have clearly defined success metrics, allowing for rigorous testing, identification of bottlenecks, and iterative improvements before scaling. Lessons learned from initial pilots should inform subsequent phases, ensuring that the platform matures and adapts to real-world complexities and user feedback. This approach minimizes risks and builds confidence.

Standardization of Data Formats and APIs:

Develop and enforce a comprehensive set of open standards for data exchange formats (e.g., XML, JSON schema) and API specifications across all participating entities.

This involves creating detailed documentation, providing developer toolkits, and offering technical support to ensure that all banks, NBFCs, fintechs, and data providers can seamlessly integrate with the ULI platform. A governance body should be established to oversee adherence to these standards and manage future updates.

Capacity Building and Training:

Launch extensive training programs for all stakeholders, including bank and NBFC employees, fintech partners, government officials, and even prospective borrowers.

For financial institutions, training should focus on the technical aspects of ULI integration, new underwriting models, and digital customer service. For government officials, it's about understanding data digitization and sharing protocols. For borrowers, simplified educational materials, workshops, and digital literacy camps (especially in rural areas) will be crucial to build comfort and confidence in using digital lending services. This could involve "phygital" approaches with physical touchpoints (e.g., banking correspondents) assisting digital inter          s.

Incentivize Data Digitization by States:

The central government could continue to incentivize and financially support state governments for the rapid and accurate digitization of key records.

This includes linking portions of central grants or interest-free capital expenditure loans (like those already in place) to progress in digitizing land records, property registrations, vehicle registrations, and other relevant datasets. Providing technical assistance and sharing best practices from states that have made significant progress in digitization can also accelerate the process.

Develop AI/ML-driven Risk Models:

Invest in developing sophisticated Artificial Intelligence and Machine Learning models to leverage the rich, diverse data flowing through ULI for superior credit assessment.

These models can go beyond traditional credit scores by analysing alternative data points (e.g., utility payments, trans           history from Account Aggregators, GST data for MSMEs, even satellite imagery for agricultural loans) to provide a more comprehensive and accurate risk profile, especially for new-to-credit or underserved segments. This will help reduce reliance on collateral and formal documentation.

User-Friendly Interface and Experience (UI/UX):

Prioritize the development of intuitive, accessible, and multilingual user interfaces for both borrowers and lenders, across various platforms (web, mobile apps, even assisted models for less digitally literate users).

Conduct extensive user testing to ensure ease of navigation, clarity of information, and a seamless application process. The design should minimize cognitive load and provide clear prompts and feedback at each step. Accessibility features for differently-abled individuals should be integrated.

Strong Grievance Redressal Mechanism:

Establish a multi-tiered, easily accessible, and time-bound grievance redressal system.

This includes a centralized helpdesk (both digital and voice-based), clear escalation paths, and independent oversight mechanisms (e.g., an ombudsman for digital lending) to address complaints related to data errors, loan terms, platform malfunctions, or unfair practices. Transparency in dispute resolution outcomes will build trust.

Awareness and Outreach Campaigns:

Launch large-scale, multi-channel awareness campaigns using traditional media (TV, radio, print) and digital platforms (social media, influencer marketing) to educate the public about ULI.

These campaigns should highlight the benefits of ULI, explain how to use the platform, clarify data privacy safeguards, and provide information on grievance redressal. Tailored messaging for different demographics (e.g., farmers, small business owners, women) will be crucial.

Collaboration with Fintechs and Startups:

Actively foster a collaborative ecosystem by continuing to onboard more fintech companies and startups, encouraging them to build innovative solutions on top of the ULI infrastructure. Already, 50 fintechs were onboarded to increase the speed of adoption of ULI.

This involves creating clear pathways for integration, providing technical support, and potentially offering grants or incubation support for promising solutions that address specific credit gaps or enhance user experience. The "plug-and-play" model should be continuously promoted.

Regulatory Sandbox for Innovation:

Leverage and expand the existing regulatory sandbox framework to allow for controlled testing of new lending products, business models, and technological innovations that utilize ULI.

This provides a safe environment for experimentation without immediately burdening innovations with full regulatory compliance, thereby accelerating the development of novel credit solutions (e.g., embedded finance, hyper-personalized loans) while ensuring consumer protection.

Inter-Agency Coordination:

Establish a high-level inter-agency coordination committee involving representatives from the RBI, Ministry of Finance, NITI Aayog, Ministry of Electronics and Information Technology (MeitY), and various state governments.

This committee would ensure policy coherence, streamline data sharing agreements, resolve inter-departmental challenges, and align national and state-level digitization efforts to support ULI's objectives.

Performance Monitoring and Analytics:

Implement a robust system for continuous monitoring of ULI's performance, user adoption, trans           volumes, and the impact on financial inclusion and credit growth.

This involves collecting and analysing key performance indicators (KPIs) and conducting regular impact assessments. Data-driven insights will enable continuous optimization of the platform, identification of areas for improvement, and informed policy decisions.

Promote Co-lending Models:

Actively encourage and facilitate co-lending partnerships between large public/private sector banks and agile NBFCs/fintechs through the ULI platform.

This allows banks with large balance sheets to leverage the technology and last-mile reach of fintechs, while fintechs gain access to cheaper capital. ULI can provide the necessary data and integration framework to make co-lending more efficient and scalable, spreading risk and expanding credit outreach.

Focus on Financial Literacy:

Integrate financial literacy and responsible borrowing education into the broader ULI initiative.

This goes beyond just teaching how to use the platform. It involves educating borrowers about understanding loan terms, interest rates, repayment obligations, managing debt, and the consequences of default. This can be done through dedicated educational modules within the ULI platform, partnerships with financial literacy organizations, and community outreach programs, empowering borrowers to make sound financial decisions.

By proactively addressing these issues with concerted efforts, India's Unified Lending Interface has the potential to truly democratize credit, foster financial inclusion, and usher in a new era of efficient and accessible lending for all.

 

Rekindling India's Private Capex Engine: A Blueprint for Growth

 

Rekindling India's Private Capex Engine: A Blueprint for Growth

India stands at a pivotal juncture in its economic journey. While government-led capital expenditure has been a formidable engine of growth, the sustained acceleration of India's development hinges critically on a robust revival of private sector investment. This crucial 'Capex' (Capital Expenditure) by businesses signifies expansion, job creation, and future productivity gains. However, despite a conducive policy environment and improved financial health in some sectors, the private sector faces a multi-faceted array of issues in significantly scaling up its investment commitments. Understanding these hurdles and charting a clear, actionable roadmap is paramount to unlocking India's full economic potential.

Why Private Sector is not Increasing Capex  :

Weak Consumer Demand:

Issues: Subdued domestic consumer demand can make businesses hesitant to invest in expanding capacity, as they don't foresee sufficient uptake of increased production.

While the Finance Ministry reported a strong rebound in private consumption, with its share in nominal GDP increasing from 60.2% in FY24 to 61.4% in FY25, which is the second-highest level in two decades, some economists still emphasize that it needs to be "robust enough to justify major greenfield investments." The growth in private final consumption expenditure in FY25 was 7.2%, up from 5.6% in FY24, largely due to a rebound in rural demand. However, urban demand has been impacted by higher interest rates and stricter lending conditions for unsecured loans.

Global Uncertainty and Geopolitical Tensions:

Issues: Events like US tariff regimes, potential import surges from China, and other geopolitical risks create unpredictability in global trade, input costs, and overall economic outlook, leading to investor caution.

A government survey (MoSPI, Forward-Looking Survey on Private Sector CAPEX Investment Intentions, Nov 2024-Jan 2025) projected a 25% decline in private corporate sector capital expenditure to ₹4.88 lakh crore in FY26 from ₹6.56 lakh crore in FY25, partly reflecting "apprehension shown by the responding enterprises" due to factors like global protectionism and changing US policies. India Ratings estimates that if reciprocal tariffs are imposed by the US, India's exports to the US could decline anywhere between $2 billion to $7 billion in FY26.

High Borrowing Costs:

Issues: Elevated interest rates increase the cost of financing large-scale projects, making companies prefer internal accruals over bank borrowing.

The RBI's Monetary Policy Committee, in June 2025, announced a reduction of the Repo Rate by 50 basis points to 5.50%. While this is a positive step, the average interest rate paid by manufacturers in a FICCI survey (Q1 2024-25) was reported to be 9.8%, indicating that borrowing costs remain a significant factor. Businesses will typically invest when the return on investment exceeds their cost of capital, including borrowing costs.

Low Capacity Utilization:

Issues: If existing production capacities are not fully utilized, there's little incentive for companies to invest in new capacity expansion.

The overall average capacity utilization rate in the manufacturing sector was reported to be close to 75% in Q1 FY 2024-25, according to a FICCI Manufacturing Survey. While some sectors like Automotive & Auto Components (84.0%) and Cement (82.5%) reported higher utilization, the overall rate declined to 74.7% in Q3 FY24 from a peak of 76.3% in Q4 FY23 (Drishti IAS). This suggests that there's still headroom in existing capacities before widespread new investments are needed.

Structural Bottlenecks:

Issues: Persistent issues like delays in land acquisition, complex environmental clearances, and inadequate labour reforms hinder project execution and increase costs.

While difficult to quantify with a single statistic, the MoSPI survey explicitly mentions "delays in land acquisition and lack of labour reforms persist as major obstacles." The struggle of large companies like L&T to hire 40,000 skilled workers (cited by Drishti IAS) points to ongoing labour market rigidities and skill gaps.

Scarcity of Skilled Labour:

Issues: A shortage of skilled workers can hamper project execution, increase labour costs, and deter companies from undertaking new projects that require specialized expertise.

The FICCI Manufacturing Survey (Q1 2024-25) indicated that while most sectors are not facing a general shortage of labour, 17% of respondents still feel there is a lack of skilled workforce available in their sector, highlighting a need for more focused skill development.

Policy Uncertainty and Inconsistency:

Lack of stability and clarity in government policies and frequent changes can deter long-term, capital-intensive investments.

This is primarily qualitative, but the MoSPI survey's caution about the projected decline in capex for FY26 reflecting "conservative approach and apprehension of the reporting firms" could be partly linked to perceived policy uncertainties ahead, including the "change of guard in the US."

Past Experiences with Insolvency and Bankruptcy Code (IBC):

Issues: Previous instances of bankruptcies and asset seizures under the IBC have made firms more risk-averse and led to conservative financial planning, prioritizing debt reduction over new investment.

Drishti IAS mentions that "Past bankruptcies (e.g., Jet Airways, Essar) under the Insolvency and Bankruptcy Code, 2016 have made firms more risk-averse. Fear of asset seizure leads to conservative financial planning." This is more of a behavioural impact, though the improved financial health of banks (see point 10) also signals a cleaner slate for lending.

Concentration of Investment:

Issues: New private investments are often concentrated among a few large corporations, indicating a lack of broader participation across industries and enterprise sizes, especially SMEs.

The MoSPI survey noted that manufacturing activities accounted for over 65% of the total gross fixed assets in the private corporate sector from 2021-22 to 2023-24. While overall private corporate capex increased by 66.3% over four years (FY21-22 to FY24-25), the significant projected decline in FY26 suggests that the previous growth may have been driven by a smaller set of active investors or a temporary cycle. The survey also focuses on larger enterprises (e.g., manufacturing with turnover of ₹400 crore or more), implying a potential gap in capturing SME investment trends.

Financial Sector  (e.g., NPAs):

Issues: Issues within the banking sector, such as high non-performing assets (NPAs) and banks' reluctance to lend, especially to SMEs, can restrict access to capital.

The good news is that the banking sector's health has significantly improved. The Gross Non-Performing Assets (GNPA) ratio of Scheduled Commercial Banks (SCBs) declined to a 12-year low of 2.6% in September 2024 (RBI report). For Public Sector Banks (PSBs) specifically, the GNPA ratio improved to 3.12% in September 2024 from a peak of 14.58% in March 2018. This improvement could ideally translate into greater credit availability for private investment, but the impact might have a lag.

Uneven Domestic Demand:

Issues: While some sectors might show recovery, overall domestic demand can be uneven, making it difficult for businesses to project future demand confidently across all segments.

As noted earlier, while overall private consumption is growing, the nuance lies in the fact that the recovery has been "largely supported by a rebound in rural demand," while "urban demand has been affected by higher interest rates." This unevenness can still create cautiousness for businesses reliant on broader market recovery.

Sluggish Exports:

Issues: A global economic slowdown and sluggish exports limit the growth potential for export-oriented industries, reducing their incentive for capex.

Despite global trade uncertainties, India's exports (at constant 2011-12 prices) rose by 6.3% in FY25, a notable improvement from 2.2% growth in FY24 (Finance Ministry report). However, the ongoing geopolitical tensions (as mentioned in point 2) and potential tariff wars still pose a risk to export-oriented capex.

Emphasis on Debt Retirement over Investment:

Issues: Despite high corporate profitability, many companies prioritize using their earnings to retire debt rather than investing in new capacities. This is partly due to past financial stresses and a desire for stronger balance sheets.

Crisil Intelligence notes that the debt-to-net-worth ratio of companies has significantly improved, declining from 1.05 times in FY2015 to an estimated 0.50 times in 2025, indicating that companies now have "ample room to take on new debt for expansion." However, this also implies that a substantial portion of recent profits has been directed towards deleveraging.

Lack of Greenfield Projects:

Issues: A significant portion of current investments are brownfield (expansion of existing units) funded through internal funds, with a lack of new greenfield investments that typically require external funding and indicate broader economic expansion.

The MoSPI survey highlighted this, stating, "Most current investments are brownfield (expansion of existing units), funded through internal funds. Greenfield investments (new units) that typically require bank funding are lacking, reducing overall capex visibility."

Inflationary Pressures:

Issues: High inflation, particularly food inflation, erodes household consumption power, indirectly dampening consumer demand and thus private investment.

The RBI's June 2025 Monetary Policy projected CPI inflation for FY25-26 at 3.7%, with Q1 at 2.9% and gradually increasing to 4.4% by Q4. While within the target band, persistent inflationary pressures, especially on food, can impact real wages and consumption, which in turn affects investment decisions. Outlook Business economist Devendra Kumar Pant noted that "consumption was seen contracting during high inflation regime, because the real wages of the people are not growing at the same pace as that of inflation. In the agriculture sector, real wages are in the negative territory."

What can be done to Increase Capital Expenditure by the Private Sector :

Boost Consumer Demand:

Action Plan: Implement targeted fiscal measures, such as tax relief for middle and lower-income households, and direct benefit transfers, to increase disposable income and stimulate consumer spending.

The Finance Ministry reported that private consumption's share in nominal GDP increased to 61.4% in FY25, the second-highest level in two decades. Further boosting this, especially for segments where real wages have been stagnant or declined (as noted by Devendra Kumar Pant, real monthly wages in 2023-24 were lower than 2017-18, impacting purchasing power), can directly translate to higher demand and justify increased production capacity.

Ensure Policy Stability and Predictability:

Action Plan: Create a consistent and predictable regulatory and policy environment with clear long-term roadmaps to reduce uncertainty and restore investor confidence for sustained long-term projects.

The 25% projected decline in private corporate capex to ₹4.88 lakh crore in FY26 (MoSPI survey) is partly attributed to "apprehension" from responding firms, likely stemming from a lack of complete certainty. Clearer, stable policy frameworks could mitigate such projected dips and encourage long-term commitments.

Streamline Land Acquisition and Clearances:

Action Plan: Introduce a single-window clearance system for industrial projects, digitize land records, and simplify environmental and other regulatory approvals to drastically reduce project delays.

The National Single Window System (NSWS) already reports 67,000+ approvals applied through it, with 32 Central ministries and 29 State approvals live. Expanding its scope and efficiency, and crucially, improving the Realisation Ratio (RR) of planned investments (which dipped significantly in 2023-24, as per the MoSPI survey), would directly lead to faster project execution and lower cost overruns.

Implement Progressive Labour Reforms:

Action Plan: Introduce flexible labour laws that balance employer needs with worker protection, encouraging formal sector job creation and investment in labour-intensive industries.

While a direct correlation is hard to quantify, the fact that 17% of surveyed manufacturers in Q1 FY24-25 (FICCI) still perceive a skilled labour shortage suggests rigidities in the labour market. Reforms aimed at easier hiring/firing and skill matching can reduce labour-related risks for investors and boost employment numbers.

Maintain Competitive Borrowing Costs:

Action Plan: The central bank could continue to assess macroeconomic conditions to ensure interest rates are conducive to investment, potentially through further calibrated rate cuts or liquidity measures.

The recent 50 basis point reduction in the Repo Rate to 5.50% by the RBI in June 2025 is a step in this direction. While the average interest rate for manufacturers in Q1 FY24-25 was 9.8% (FICCI), further reductions (if inflation allows) would directly lower the cost of capital, making more projects financially viable.

Further Strengthen Banking Sector:

Action Plan: Continue to reinforce the financial health of banks, promote responsible lending practices, and enhance credit flow to productive sectors, including Micro, Small, and Medium Enterprises (MSMEs).

The Gross NPA ratio of SCBs falling to a 12-year low of 2.6% in September 2024 signifies a much healthier banking system. This increased capacity could be directly channelled into credit growth for industries. MSME credit grew by 20% year-on-year to ₹40 trillion by March 2025 (CRIF), indicating positive momentum, which needs to be sustained and expanded.

Expand and Improve Infrastructure:

Action Plan: Continue significant government spending on physical infrastructure (e.g., National Infrastructure Pipeline, Gati Shakti) to reduce logistics costs, improve connectivity, and create a conducive ecosystem for private investment.

While specific "multiplier effect" statistics are complex, studies globally suggest that every dollar invested in infrastructure can generate $1.5 to $2.5 in economic activity. India's increased public capex, which has been a major driver of growth in recent years, aims to "crowd-in" private investment by reducing bottlenecks.

Broaden and Deepen Production Linked Incentive (PLI) Schemes:

Action Plan: Expand the scope of PLI schemes to cover more sectors with high growth and employment potential, and ensure timely, transparent, and efficient disbursement of incentives.

The PLI scheme for telecom has generated ₹78,672 crore in total sales (including ₹14,963 crore in exports) and created 26,351 jobs as of January 2025, with ₹1,162 crore in incentives disbursed till March 2025. Expanding these schemes and ensuring swift payouts (only 21 out of 42 eligible telecom manufacturers received incentives) can significantly boost investment in targeted sectors.

Promote Greenfield Investments:

Action Plan: Develop specific incentive packages, fast-track approvals, and create dedicated industrial corridors to encourage new, greenfield projects that represent fresh capacity creation.

The MoSPI survey highlighted a lack of new greenfield investments, with most current capex being brownfield. Policies specifically targeting greenfield projects could alter this, potentially increasing the share of fresh, capacity-adding investments, which have a larger long-term economic impact.

De-risk Private Sector Investments:

Action Plan: Promote innovative financial instruments like Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs) to pool capital, diversify risk, and attract patient capital for large infrastructure projects.

Indian REITs have outperformed NIFTY50 in the last year, and analysts expect 5-8% NAV growth for covered REITs in FY26. The proposal to increase investment limits for MFs in REITs and InvITs from 10% to 20% (SEBI consultation paper, June 2025) aims to unlock more capital for these instruments, attracting broader investor participation in large projects.

Enhance Ease of Doing Business:

Action Plan: Continuously improve India's ranking in the Ease of Doing Business index by simplifying regulations, reducing bureaucratic hurdles, and enhancing the efficiency of government services for businesses. There are several initiatives by Government to improve the Ease of doing Business on a continuous basis.

While India significantly improved its ranking in the World Bank's Ease of Doing Business (from 142 in 2014 to 63 in 2019), the survey's discontinuation makes recent comparable data unavailable. However, continued domestic reforms directly translate to reduced compliance costs and time, encouraging more businesses to set up and expand.

Foster Innovation and Technology Adoption:

Action Plan: Provide tax incentives for R&D, establish dedicated funds for innovation, support technology incubators, and encourage the adoption of Industry 4.0 technologies. It is heartening to note that Government of India now has allocated Rs.100,000 cr for encouraging R&D.

Studies on India's R&D tax credit scheme have found that increases in tax credits were effective in increasing R&D expenditure and productivity of eligible firms, and could even lead to a decline in prices. Further strengthening these incentives can boost innovation-led capex, particularly in sectors like AI, biotech, and advanced materials.

Address Skilled Labour Shortages:

Action Plan: Invest heavily in skill development programs, vocational training, and industry-academia collaborations to align workforce skills with industry demands, potentially leveraging initiatives like Skill India Mission.

The FICCI Economic Outlook Survey (May 2024) highlighted a "significant shortage of quality skilled labour across sectors" and a "glaring gap" between jobs and skills. Bridging this gap is crucial for new investments in advanced manufacturing and technology.

Encourage Public-Private Partnerships (PPPs):

Action Plan: Revitalize the PPP framework by addressing past bottlenecks, ensuring equitable risk-sharing, and providing clear guidelines to attract private sector expertise and capital for public projects.

While specific completion rates for PPPs are varied and complex, successful PPP models can leverage private sector efficiency. Global examples suggest that effective PPPs can lead to faster project completion and better service delivery, ultimately attracting more private capital.

Incentivize Corporate Debt Reduction and Equity Infusion:

Action Plan: Encourage companies to maintain healthy balance sheets through prudent financial management and consider policies that incentivize fresh equity issuances over excessive debt.

Crisil Intelligence notes that the corporate debt-to-net-worth ratio has significantly improved to an estimated 0.50 times in 2025, indicating "ample room to take on new debt for expansion." Policies that encourage a healthy mix of debt and equity can lead to more stable and sustained capex cycles.

Diversify Investment Sources:

Action Plan: Actively promote India as an attractive destination for Foreign Direct Investment (FDI) through liberalized policies, proactive investor outreach, and ensuring ease of repatriation of profits.

FDI inflows to India increased by 14% to USD 81.04 billion in FY24-25, with the number of source countries growing from 89 in FY13-14 to 112 in FY24-25 (PIB). Continued focus on this can bring in significant capital for new projects.

Boost Exports:

Action Plan: Implement comprehensive policies to enhance export competitiveness, including trade facilitation measures, exploring new international markets, and negotiating favourable trade agreements.

India's exports (at constant 2011-12 prices) rose by 6.3% in FY25, an improvement from 2.2% in FY24 (Finance Ministry). Sustaining this growth, especially in high-value manufacturing, directly incentivizes export-oriented industries to expand capacity.

Sector-Specific Growth Strategies:

Action Plan: Develop tailored strategies and incentives for high-potential sectors like renewable energy, electric vehicles, advanced manufacturing, and defence production to unlock their full Capex potential.

The MoSPI survey noted that manufacturing accounted for over 65% of total gross fixed assets in the private corporate sector, and specifically, the manufacturing sector intends to invest a major fraction of its capex in value-added activities (partly due to PLI). Targeting high-growth sectors (e.g., EV market set to grow at 49% CAGR till 2030, reaching 1 crore annual sales) can yield significant investment.

Leverage Data for Targeted Interventions:

Action Plan: Utilize granular data from surveys and industrial performance indicators to identify specific sectors, regions, or enterprise sizes where investment is lagging, and design targeted policy interventions.

The MoSPI's Forward-Looking Survey on Private Sector CAPEX Investment Intentions itself is an example of this. Its findings, like the projected 25% dip in FY26 capex, provide crucial insights for policymakers to respond with targeted measures (e.g., "Capex intention slowdowns or a shrinkage in RR could be met with tax breaks or temporary subsidies").

Clear Communication of Economic Vision:

Action Plan: The government could clearly articulate its long-term economic vision, growth targets, and policy roadmap to build confidence among domestic and international investors, encouraging them to commit long-term capital. Government has announced its vision for 2047 through Vikshit Bharat campaigns and for specific sectors also, the targets for achievement for 2030 are communicated to the public from time to time. This has brought clarity and acts as a good guidance for Corporates.

While difficult to quantify directly, investor confidence surveys often show a positive correlation with clear government communication. Reducing policy uncertainty (as mentioned in point 2) through clear communication can directly influence investment decisions, especially in a dynamic global environment.

By systematically addressing these issues  and diligently implementing these action plans, India can ensure that its private sector becomes a far more vigorous engine of capital expenditure, driving sustainable growth, creating millions of jobs, and cementing India's position as a leading global economy. The time to act decisively is now.

India's economic trajectory towards 2030 is marked by strong growth potential, with S&P Global Ratings estimating total private capital expenditure to reach $800-850 billion over the next five years. This will be largely funded through operating cash flows and domestic financing, without significantly increasing debt.

Here's a more detailed look at the  high-growth sectors and their expected private capex, leveraging available projections up to 2030:

Infrastructure (Power, Roads, Transport)

Expected Growth Rate: This sector is expected to see its private capex double over the next five years. The overall India infrastructure sector market is valued at $190.7 billion in 2025 and is forecast to reach $280.6 billion by 2030, registering an 8.0% CAGR. Private capital is projected to record the highest CAGR at 9.7% through 2030.

Expected Private Capital Expenditure:

Roads: Continued investment in national highways and expressways, with significant private participation through BOT (Build-Operate-Transfer) and Hybrid Annuity Model (HAM) projects.

Railways: Modernization of existing networks, dedicated freight corridors, and new high-speed rail projects will attract private funds.

Ports: Expansion and modernization of port capacities to handle increased trade volumes. Port cargo handling capacity is targeted to expand from 2,760 MTPA to ~3,500 MTPA by 2030.

Power Transmission: Requires an estimated $100 billion in capex to support the growing power generation capacity and integrate renewable energy.

Renewable Energy

Expected Growth Rate: India has ambitious targets, aiming for 500 GW of non-fossil fuel electricity capacity by 2030. New renewables (primarily solar and wind) are expected to contribute up to 32% of total electricity by 2030, up from 13% today. Solar power alone is projected to supply 23% of electricity by 2030, requiring 293 GW of solar energy.

Expected Private Capital Expenditure: Renewable energy is projected to account for about 15% of total corporate capex and around 40% of the incremental investment by 2030. This includes significant private investment in solar power plants, wind farms, advanced chemistry cell (ACC) battery manufacturing, and nascent green hydrogen projects.

Manufacturing (General)

Expected Growth Rate: Industrial capex is projected to rise by 40-50% over the next five years. The manufacturing sector accounted for the largest share at 43.8% of intended capex in recent surveys (2024-25).

Expected Private Capital Expenditure: Driven by "Make in India" and PLI schemes, private companies are investing heavily in capacity expansion, technological upgrades, and new facilities across various sub-sectors.

Electronics Manufacturing:

Expected Growth Rate: India's electronics manufacturing sector is poised for significant growth, potentially reaching $282 billion to $500 billion by 2030. The mobile and wearables segment alone is projected to grow to $159 billion by FY2030.

Expected Private Capital Expenditure: Substantial investments are expected in mobile phone manufacturing, semiconductor fabrication (e.g., Tata Electronics' first semiconductor unit), and consumer electronics, spurred by PLI schemes.

Automobiles and Auto Components:

Expected Growth Rate: The Indian automotive market (Passenger Vehicles + Commercial Vehicles) is expected to reach 7.5 million units in 2030 from 5.1 million units in 2023, registering a CAGR of 5.7%. EVs are projected to constitute over 40% of the Indian automotive market by 2030, generating revenue of over $100 billion.

Expected Private Capital Expenditure: Significant investments are being made by OEMs in new production facilities, including dedicated EV plants (e.g., Honda's electric motorcycle plant by 2028, Toyota's $2.3 billion investment), battery manufacturing, and supply chain localization, supported by PLI schemes.

Pharmaceuticals and Medical Devices:

Expected Growth Rate: The India pharmaceutical market is projected to reach $88.86 billion by 2030, advancing at a 5.92% CAGR from $66.66 billion in 2025. Oncology is projected to grow at a 7.10% CAGR through 2030.

Expected Private Capital Expenditure: Driven by strong domestic demand, export opportunities, and PLI schemes, private players are investing in R&D, manufacturing of active pharmaceutical ingredients (APIs) for self-reliance, and expansion into high-growth therapeutic areas and medical device production.

Aviation

Expected Growth Rate: India is the third-largest domestic aviation market, and its airline passenger count is expected to double by 2030. Global RPK (Revenue Passenger Kilometers) for Asia is anticipated to increase by 53% from 2019 to 2030, with India on pace to become the ninth-largest outbound travel market.

Expected Private Capital Expenditure: Investments in airports may double or triple. Indian carriers have ordered over 1,600 aircraft through 2030 (e.g., IndiGo alone ordered 500 aircraft, aiming to more than triple its fleet by 2035). Private capital will flow into fleet expansion, MRO (Maintenance, Repair, and Overhaul) facilities, and modernization of airport infrastructure. India has already spent $25 billion on airport infrastructure capex between 2020-24 and plans to double the number of airports by 2047.

Logistics and Warehousing

Expected Growth Rate: The logistics market in India is expected to reach a projected revenue of $357.3 billion by 2030, exhibiting a compound annual growth rate of 7.7% from 2025 to 2030. Warehousing and Distribution Services are expected to be the fastest-growing segment.

Expected Private Capital Expenditure: With the implementation of the National Logistics Policy and the growth of e-commerce and manufacturing, private investment in modern warehousing facilities, cold chains, multimodal logistics parks, and last-mile delivery infrastructure will be substantial.

Digital Infrastructure and Connectivity

Expected Growth Rate: India's digital economy contributed 11.74% to GDP in 2022-23 and is projected to reach 20% of GVA by 2029-30. 5G services are expected to generate over 65% of total data revenue by 2026.

Expected Private Capital Expenditure: High growth in data consumption, AI adoption, and cloud services will drive private capex in:

Data Centres: Over 15 global carriers plan AI-enabled data centres in India during 2025.

Fiber Optic Networks: Deployment of dense fibre backhaul for 5G, smart city surveillance, and edge-AI applications.

5G Rollout: Continued private investment by telecom operators in expanding 5G networks.

Healthcare

Expected Growth Rate: India's healthcare expenditure is expected to surge from 3.3% to 5% of its GDP by 2030. The population aged 45 years and above is expected to grow by ~2.5% to 3% annually, driving demand.

Expected Private Capital Expenditure: Private players, who operate over 60% of hospital beds, will invest heavily in:

Hospital and Clinic Expansion: Especially in Tier 2 and Tier 3 cities.

Medical Equipment and Technology: Adoption of advanced diagnostics and treatment technologies.

Telemedicine and Digital Health Platforms: Further expanding access to healthcare services.

Pharmaceutical R&D and Manufacturing: Beyond generics, into specialized drugs and biotechnology.

Financial Services

Expected Growth Rate: India's robust economic growth (projected 6.3-6.5% in FY25 and 6.5-6.7% in FY26 by Deloitte) will fuel the financial sector. Digital payment transactions (like UPI, which accounts for 49% of global real-time payments) are growing rapidly.

Expected Private Capital Expenditure: Financial institutions will invest in:

Digital Transformation: Enhancing digital banking platforms, AI-driven solutions, and cybersecurity.

Branch Network Expansion: Especially in underserved areas for financial inclusion.

Fintech Innovation: Investment in payment gateways, lending platforms, and wealth tech.

Data Analytics and AI: To improve customer experience, risk management, and operational efficiency.

Education and Skill Development

Expected Growth Rate: The education sector in India was estimated to be worth $117 billion in 2023 and is expected to reach $313 billion by FY30. The higher education market is anticipated to witness a CAGR of 8.46% between 2024 and 2032. The EdTech industry is expected to reach $4 billion by 2025 at a CAGR of 39.77%.

Expected Private Capital Expenditure: Private investment will be significant in:

Setting up New Educational Institutions: Including universities, colleges, and vocational training centres to cater to the growing youth population.

EdTech Platforms: Developing and expanding online learning solutions, digital content, and AI-powered personalized learning.

Skill Development Initiatives: Training centres focused on future-ready skills like AI, data science, coding, and green jobs.

International Collaborations: Partnerships with foreign universities and institutions.

Tourism and Hospitality

Expected Growth Rate: The Indian hospitality sector is experiencing strong growth, with Revenue per Available Room (RevPAR) projected to grow by 8-10% in FY25 and 7-8% in FY26. Occupancy levels are projected to stabilize between 66-68% from FY25 to FY27. India is also bidding for major global events like the 2036 Olympics.

Expected Private Capital Expenditure: Greenfield capex growth in the hospitality sector is expected to stay at 4-5% CAGR over the next few years. Private players will invest in:

New Hotels and Resorts: Expansion across various segments (luxury, mid-scale, budget), especially in Tier 2 and Tier 3 cities.

Homestays and Boutique Accommodations: Catering to niche and experience-driven tourism.

Tourism Infrastructure: Development of theme parks, adventure tourism facilities, and cultural centres.

Digitalization of Services: Investing in online booking platforms, digital guest services, and marketing.