Budget 2026: India Inc’s pre-tax profits remain concentrated at the top

The health of the Indian corporate sector has been a topic of considerable discussion in recent years, especially since capital expenditure by the private sector has been tepid even as the government has picked up the slack. This, despite repeated exhortations from Prime Minister Narendra Modi and Union Minister Nirmala Sitharaman for firms to invest and expand capacity domestically.  

Economists had put that down to a K-shaped recovery since the outbreak of the Covid-19 pandemic, where larger companies recovered faster from the slump than smaller ones.

Data presented in the Union Budget 2026-27 highlights the divergence. In FY24, nearly two-thirds of corporate profits were earned by just 0.08% or 877 of 1.13 million companies. These companies also paid the lowest effective tax rate. It is below the overall average for all companies and rates borne by the least profitable companies.

The Budget documents show that the share of these large companies, categorised as those that reported profits before tax (PBT) above Rs 500 crore, in total profits touched a fresh high. The data presented in the Receipts Budget every year since FY06 comes with a lag.

More broadly, the top 2% of companies, those that reported PBT more than Rs 10 crore, accounted for 93% of the total profits reported.

At the other end, more than half the companies either reported losses or made no profit in FY24. This marks a structural shift from FY18, when, for the first time, over 50% of companies fit this categorisation. That trend continued till the pandemic-affected FY21, when 54% of companies fell in this category. There has been a marginal improvement since then.

In fact, the increase in the share of loss-making companies is commensurate with a fall in the proportion of companies that reported the lowest PBT, that is, PBT up to Rs 1 crore, the Budget documents show. The share of such companies fell from 54.47% in FY06 to 48.91% in FY13, the first time it dipped below 50%. The category witnessed a steep fall in FY18, when it fell to 41.04% from 47.67% the previous year, and hit an all-time low of 40.15% in Covid-hit FY21. It has recovered slightly since then.

The tax data, too, reinforces the imbalance. The effective tax rates have been much lower for companies that reported the highest PBT and higher for those that reported the lowest PBT. For instance, in FY24, the effective tax rate for the companies that reported PBT above Rs 500 crore was 18.85%, which was lower than the overall rate of 22.47%, and much below the 23.68% rate for companies that reported PBT up to Rs 1 crore. Although effective tax rates have dipped across the board since the government reduced the corporate tax rate in 2019, the decrease was more pronounced for companies that reported higher PBT. The Budget documents define effective tax rate as “the ratio of total taxes (including surcharge and cess) to the total profits before taxes (PBT) and expressed as a percentage.”

This matters because the increase in profitability at the top end has not resulted in a comparable increase in private investments. The Economic Survey for 2024-25, tabled along with the Union Budget on February 1 last year, had highlighted that though India Inc was sitting on record profits, wage growth in these companies had been sluggish. “Among Nifty 500 companies, the profit-to-GDP ratio surged from 2.1% in FY03 to 4.8% in FY24, the highest since FY08,” it said.

Surajit Mazumdar, Professor at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, says that the health of corporate India depends on how it is defined. “If by India Inc we mean the biggest companies, then they are clearly doing well. But if you look at it as a whole, there are clear signs of distress,” he says.

Mazumdar says the Indian economy is witnessing a double concentration, where income is increasingly concentrated among the wealthy and corporate profits among a handful of firms, many of which also enjoy the lowest effective tax rates. “Measures to boost ease of doing business are not creating the conditions for a broad-based flowering of entrepreneurship,” Mazumdar says.

He identifies two distinct phases of distress. The first, beginning in FY13, reflected the delayed impact of the global financial crisis on India. The second, he says, began around FY19 because of demonetisation and the implementation of the goods and services tax (GST), which appears to have impacted smaller firms. These pressures were compounded by the Covid-19 pandemic and do not appear to have reversed.

Mazumdar says the problem India faces is persistently low wages, which means a large proportion of the population is unable to increase its spending beyond essentials. “Private sector investment is not increasing because sectors that can absorb large amounts of investment are not offering good returns. In manufacturing, there is a demand constraint because of inequalities in the economy,” he says.  

Not everybody agrees with this characterisation of the corporate sector. Madan Sabnavis, Chief Economist at the Bank of Baroda, says India Inc must be defined more narrowly. Even by turnover, he says, the top 500 companies would account for the lion’s share. The interest coverage ratio, a measure of how easily a company can pay off its debt, is a much better measure to check the health of the sector, he adds. “According to our studies, the ratio has improved since the Covid-19 pandemic to three or four for the top firms,” he says. A higher ratio indicates a better ability to cover debt.

On its part, the government has announced a slew of measures in recent years to improve the ease of doing business and boost consumption. Apart from the corporate tax cuts mentioned earlier, the finance minister reduced income tax rates in last year’s Budget and followed that up last September with a rationalisation of the goods and services tax (GST). India is also projected to see higher-than-expected gross domestic product growth of 7.4% in FY26, according to the first advance estimates released by the Ministry of Statistics and Programme Implementation. Their impact on corporate profits is not captured in the data because it shows returns filed for earlier years.

Since the income tax and GST cuts are recent, their impact would be visible in some time, says Pronab Sen, former Chief Statistician. However, the corporate tax cut has had a limited impact, he adds. “That’s because by definition, corporation tax cuts benefit companies that earn profits, and not those that are not profitable,” Sen says. Any further cuts would create disparities.  

The BT-C Fore Business Confidence Survey of 500 CEOs and CFOs, conducted since the beginning of 2011, bears this out. Confidence among small and micro firms has trailed that of larger companies.

“A pickup in consumption would improve the corporate sector’s fortunes, but consumer confidence appears to be low,” Sen says.

Optimism is expected to rise following the announcement of an interim bilateral trade agreement with the US. The agreement was announced by Prime Minister Narendra Modi and US President Donald Trump after the broader US-India Bilateral Trade Agreement (BTA) negotiations, launched in February last year.

The stock markets soared, and the rupee recovered vis-à-vis the dollar. Many observers expect consumption and corporate profits to follow suit.

@v1kramgopal