Weak animal spirits

Strong balance sheets are not leading to higher investment

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Unlisted companies in India are financially stronger than they have been in decades.

An analysis of the Centre for Monitoring Indian Economy (CMIE) data, published in this newspaper, showed their debt burden was at a 35-year low, with high interest coverage and healthy profits. These firms, which account for a large share of output, employment, and private investment, include many large, wealthy enterprises such as family-owned industrial groups, infrastructure companies, and Indian arms of global multinationals. Many clearly have the balance-sheet capacity to borrow and invest far more than they currently do. Yet, where these firms are borrowing, it is often to refinance older loans rather than expand capacity. If firms with strong profits, low leverage, and easy access to credit are unwilling to take risks, the problem clearly lies beyond finance.