The Health of India Inc has been the subject of considerable discussion in recent years, especially since then capital expenditure from the private sector has been lukewarm even though the government has picked up the slack. Indeed, since the outbreak of the Covid-19 pandemic, there has been widespread discussion of a K-shaped recovery where larger companies recovered more quickly from the pandemic than smaller ones.

The data presented in the Union Budget 2026-2027 seems to confirm this. Only 877 or 0.88% of the 1.13 million companies that filed tax returns for FY24 accounted for two-thirds of India Inc’s profit before tax (PBT) for that fiscal year. These are companies which declared a PBT above Rs 500 crore during the financial year, the data of which is provided with a lag in the revenue budget every year under the head of revenue impact of tax incentives of the central tax system. The data goes back to fiscal year 2006, when a large sample was first considered.

Of course, the share of companies with PBT above Rs 500 crore has exceeded 60% of total PBT every year since FY21, reaching new all-time highs every year. It rose from 62.08% in FY21 to 62.54% in FY22, 62.59% in FY23 and 64.58% in FY24, according to budget documents.

Budget documents over the years show that the share of these companies was less than 50% in fiscal year 2006, rising above half in subsequent years, with occasional dips, though it never fell below 50% after that year.

The data also shows that the proportion of companies reporting losses rose from 33.6% in FY2006 to more than 40% in FY2013 and increased to 47% in FY2019, reaching an all-time high of 49.6% in FY21, which was hit by the outbreak of Covid-19 and lockdowns announced to extend the pandemic The share of loss-making companies has declined since then, falling to 45.35% in FY24.

In fact, the increase in the share of loss-making companies is proportional to the fall in the share of companies that reported profits of up to one million rupees. The latter’s share fell from 54.47% in fiscal 2006 to 48.91% in fiscal 2013, the first time it fell below half. The category witnessed a sharp decline in FY2018, when it fell to 41.04% from 47.67% the previous year, and hit an all-time low of 40.15% in the Covid-hit FY21. It has recovered slightly since then, but was still at 41.86% in FY24.

Overall, the share of companies reporting pre-tax profits has not crossed the 50% mark since the 2018 financial year, when it first fell below that mark. It has improved from an all-time low of 46% in FY21 to just under 50% in FY24, although the ratio of companies making losses to those reporting zero profits was still above 50%.

Significantly, companies that made more profit paid less tax than companies that made less profit. For example, in FY24, the effective tax rate for companies reporting PBT above Rs 500 crore was 18.85%, which was lower than the general rate of 22.47%, and well below the 23.68% paid by companies reporting PBT up to Rs 1 crore.

The paper says the effective tax rate “is the ratio of total tax (including surcharge and cess) to total profit before tax (PBT) and expressed as a percentage”.

Explaining the data, the Budget paper says the statutory tax rate, including cess, for companies with income up to Rs 1 crore was 31.20 per cent (33.38 per cent including cess and surcharge) for companies with income up to Rs 10 crore, and 34.94 per cent with income up to Rs 10 crore, and 34.94 per cent with income above 10 million rupees. “Furthermore, for existing companies that opted for the new favorable tax regime (lower rate without deductions and exemptions) under section 115BAA of the Income Tax Act, the statutory tax rate was 25.17%,” the document notes.

The overall effective tax rate fell sharply from 27.81% in fiscal year 2019 to 22.54% in fiscal year 2020 and has hovered around that rate ever since. However, it is still higher than the overall effective tax rate of 19.26% in fiscal year 2006. The all-time high was recorded in fiscal year 2016, when it was 28.24%.

The category that saw the biggest drop in effective tax rates in those years was companies with PBT above Rs 500 crore. The category rate fell from 27.81% in FY2019 to 19.14% in FY20 to an all-time low of 18.85% in FY24. The category’s previous low was 19.1%. For companies reporting up to Rs 1 crore PBT, although the effective tax rate has come down in recent years, it was still higher than companies with the highest PBT.

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

Mazumdar says the Indian economy is witnessing a double concentration. The concentration of income in the hands of the rich and the concentration of profits among very few companies. These are also the companies that have very low effective tax rates, he points out. And these are also the companies in which investment is highly concentrated. “Measures to increase the ease of doing business are not creating the conditions for a broad flowering of entrepreneurship,” says Mazumdar.

The data show two distinct phases of distress, he adds. The first started in FY13 due to the delayed impact of the global financial crisis, and the second started in FY19 due to the impact of demonetisation and the passage of the Goods and Services Tax (GST), which seems to have affected smaller businesses. This was exacerbated by the Covid-19 pandemic and does not appear to have been reversed.

Talking about the recent measures announced to boost consumer demand, such as the cut in income tax rates in the 2025-26 budget and the subsequent rationalization of GST rates, Mazumdar says the problem was persistently low wages in the country, which means a large section of the population cannot increase their spending beyond the essentials.

“Private sector investment is not increasing because the sectors that can absorb large amounts of investment are not offering good returns. In manufacturing, there is a limitation in demand due to inequalities in the economy,” he says.

He adds that in such a situation, the alternative is exports. “But even there, the way we’re embedded in global value chains is such that what we produce is heavily dependent on imports.”

Considering the external environment, Mazumdar says the government should have used the budget to increase spending. However, the government is constrained on this front by the cumulative impact of the corporate and income tax cuts and the GST, he adds.