From the Opinions Editor: The investment question has a political answer

The quandary surrounding India's faltering economy centers on the reluctance of major, financially robust corporations to invest within the nation. Despite the government's efforts to facilitate investments, private corporate investments continue to lag behind the peak witnessed in the mid-2000s. India Inc seems more inclined to invest in financial assets rather than physical assets such as factories.

Various explanations, ranging from subdued domestic demand to global uncertainty, have been proposed. However, could the answer lie in the political economy, specifically the impact of political power structures on investment decisions?

Post-2014, there has been a noticeable centralization of political power, coupled with a shift towards greater fiscal centralization and a reconfiguration of federal structures. This has led to the restriction of state powers and the potential marginalization of regional parties. Efforts such as the MMDR Amendment Act 2026 exemplify this trend.

Furthermore, the rise of a handful of large companies, often termed national champions, has resulted in increased market concentration. These corporations, aided by policy, now wield significant influence over the economy, raising concerns about competition in the following ways: first, the centralization of political power and the decline in the relative power of regional parties have diminished the patronage and protection once afforded to smaller and regional firms, potentially preventing them from ascending to national prominence.

Second, policy uncertainty, which raises barriers to entry and fosters an uneven playing field in favor of these larger corporations, has made it increasingly difficult for new players to emerge. Lastly, the fear of being outmaneuvered by national champions due to arbitrary rule changes or hostile takeovers has deterred both domestic and foreign investors from committing to substantial investments in the country.

These risks suggest that the larger corporate sector may be hesitant to invest, as they lack confidence in maintaining competitiveness over the next decade. This reluctance raises questions about whether the current political structure creates an environment conducive to the safe investment and emergence of new players to challenge the national champions. If so, could a shift in the approach toward market concentration potentially usher in a new era of economic competition and political competition?