India's investment drought has a name, and it's concentration

India's investment problem is no longer a mystery. It is, as Jahangir Aziz, head of research at blockchain platform Woodmeadow and a former World Bank chief economist for South Asia, put it bluntly to The Indian Express on 29 June 2026: "Investment is the casualty when industry concentration rises." That sentence deserves to be carved into the mantelpiece of every Indian finance ministry working group currently wondering why private capital formation has refused to recover meaningfully since the post-pandemic wobble. The diagnosis is uncomfortable because the remedy is political, not technocratic. Aziz's framing — that an economy dominated by a handful of conglomerates will under-invest, under-compete, and under-pay — sits awkwardly next to a New Delhi political class that treats the country's tycoons as both mascots and feedstock.

The concentration story is not new, but its timing is. India enters the second half of 2026 with an investment-to-GDP ratio that remains anaemic by its own historical standards, with manufacturing share of GDP that has slipped rather than climbed, and with a stock market that has effectively become a proxy bet on a small number of family-run groups. When a Reuters correspondent asks the finance ministry why private capex is stuck, the answer is reliably the usual incantation: balance-sheet repair, global uncertainty, the lag from monetary tightening. Aziz's intervention is more honest. If a handful of firms control the dominant share of an industry's pricing power, they have less reason to fight for incremental market share through capacity expansion. They buy back shares. They sit on cash. They lobby for the regulatory perimeter to widen around their existing turf.

The corollary is also Aziz's, and it is the part that should make Indian policymakers more uncomfortable than the diagnosis: when concentration rises, the benefits of growth accrue to fewer firms, which in turn widens inequality and erodes the political coalition for further reform. Investment is the casualty; political space for reform is the second casualty. That second-order effect is harder to measure but no less real. Every government that has tried to push a genuinely competitive industrial policy — from Brasília to Brasília's successors — has eventually run into the same wall: the firms best placed to deliver the policy are also the firms most threatened by it.

The China variable India cannot ignore

Against this backdrop, The Indian Express on the same day published Sanjaya Baru's argument that it is time for India and China to resume a structured strategic economic dialogue. The framing is deliberately narrow — a talking channel, not a treaty — but the political signal is significant. After five years of standoff across the Line of Actual Control, after the Galwan inflection, after the informal handshakes at Kazan and the subsequent slow thawing of visa and travel restrictions, the proposition that Indian planners should be talking to their Chinese counterparts about rare-earth supply chains, battery components, and pharmaceutical intermediates is no longer fringe. It is, in Baru's telling, necessary.

The concentration argument sharpens the China case. If Indian industry is structurally concentrated and under-investing, the gap that needs filling in critical inputs — the precursors that go into active pharmaceutical ingredients, the lithium-iron-phosphate cells that go into two- and three-wheeler platforms, the permanent magnets that go into industrial motors — is not going to be closed by the incumbents alone. Either New Delhi orchestrates a deliberate de-concentration (through competition policy, through public-sector entry, through explicit industrial policy), or it manages the dependency diplomatically. The latter is cheaper, faster, and politically easier, which is precisely why serious economists from Aziz's wing of the debate have begun to make the case openly.

The Chinese counter-position deserves equal weight. Beijing's industrial policy over the past fifteen years has produced genuine capabilities — the world's dominant battery supply chain, a critical-mass rare-earth processing sector, an EV manufacturing base that has driven costs down globally. That capability is the product of long-horizon state coordination, of patient capital directed through policy banks, and of tolerating losses that private capital alone would never have absorbed. The Chinese side will frame a strategic economic dialogue with India as a chance to commercialise capacity that is currently under-utilised at home. That framing is not propaganda; it is a description of how the Chinese system has actually worked. Indian negotiators should walk in clear-eyed about that.

What the concentration critique demands

A credible response to Aziz's warning requires three things India has so far ducked. First, the Competition Commission of India needs to be funded and staffed at a level that lets it open meaningful merger reviews on the dominant conglomerates, rather than processing routine filings. Second, public-sector banks — which still hold the bulk of Indian credit — need an explicit mandate to lend against new-entrant capacity, not just to incumbent balance sheets. Third, the goods-and-services tax regime needs further rationalisation so that small and mid-cap manufacturers are not structurally taxed into illegitimacy.

None of these is glamorous. None will produce a ribbon-cutting. That is precisely the point. India's investment drought is not the result of one bad quarter or one hostile neighbour. It is the predictable output of a system in which a small number of firms have every incentive to milk rather than build. Until that structural fact is confronted — at home, and in dialogue with the one neighbour whose industrial capacity is genuinely complementary — the investment numbers will keep disappointing the headline optimists who insist India is "the next China." The honest framing is more modest, and more useful: India is the country whose industrial concentration is currently eating its investment case alive, and whose best response may be to talk to the one economy that has shown, however imperfectly, that concentration can be deliberately broken.

This publication finds that the Aziz diagnosis is the most credible single explanation currently on offer for India's private investment slump — and that the Baru proposal for a strategic economic dialogue with China becomes considerably more than a diplomatic nicety once the concentration critique is taken seriously.