A recent study by the Reserve Bank of India (RBI) indicates that the improved financial health of Indian companies is empowering them to be a significant driver of economic expansion. The central bank's analysis points to a notable resurgence in the private corporate sector, with strengthened balance sheets and increased profitability, enabling them to contribute substantially to India's growth momentum.
The RBI's October 2025 Bulletin highlights the resilience of the Indian economy amidst global uncertainties and weak external demand. High-frequency indicators suggest a revival in urban demand and robust rural demand, coupled with a moderation in headline CPI inflation in September. The private corporate sector has shown a strong recovery, bouncing back from the COVID-19 shock with stronger profitability and healthier balance sheets.
Corporate sales have rebounded sharply since the pandemic, peaking at 32.5% growth in 2021-22 before stabilizing at 7.2% in 2024-25. Net profits have also risen significantly, reaching ₹7.1 trillion in 2024-25 from ₹2.5 trillion in 2020-21, improving the net profit margin from 7.2% to 10.3%. This enhanced profitability has bolstered debt-servicing capacity, with the interest coverage ratio for manufacturing firms reaching 7.7, indicating robust financial health.
Furthermore, companies have continued to strengthen their balance sheets by capitalizing on higher profits, leading to improved debt-to-equity ratios across firm sizes. This deleveraging has contributed to a more resilient corporate sector, capable of driving investment and economic growth.
The RBI's study also sheds light on the booming SME IPO market, driven by strong retail participation and favorable market sentiment. A sharp surge in SME IPO activity was observed during FY 2023-24 and FY 2024-25, with proceeds largely used for capital enhancement and working capital purposes. While the RBI cautioned that post-listing performances reveal both opportunities and risks for investors, the increased activity in the SME sector indicates a positive trend in corporate fundraising and expansion.
The central bank economists observed that the Indian economy has exhibited resilience, supported by strong and durable macroeconomic fundamentals, including low inflation, robust balance sheets of banks and corporates, adequate foreign exchange reserves, and a credible monetary and fiscal framework. Domestic structural reforms are also helping to offset the drag on growth from weakening external demand conditions. The current macroeconomic conditions and outlook have opened up policy space for further supporting growth.
In conclusion, the RBI's study provides a positive outlook on the Indian corporate sector, highlighting its improved financial health and its potential to drive economic growth. The strengthened balance sheets, increased profitability, and deleveraging efforts of Indian companies have positioned them as a key engine for India's economic expansion.
