The Reserve Bank of India’s recent bulletin highlights a striking fact: Corporate profits have risen from about ₹2.5 trillion in FY21 to around ₹7.1 trillion in FY25 — nearly three times in five years.
That jump is not magic. It is the result of a sequence many Indian firms went through after the Covid shock: activity stalled, then recovered, then consolidated, and finally scaled up with policy nudges like PLI schemes. In my view, this is a clear story of rebound plus structural change, and the reasons that pushed profits up also create a reasonable case for continued growth.
First, the simple economics: profits grow when sales and operational efficiency improve. During 2019–21, weak domestic demand and the pandemic hit sales and margins hard. Once restrictions eased, people and businesses released pent-up demand — travel, purchases, services, and industrial orders restarted — giving a sharp lift to revenues, especially in FY22 when sales growth peaked. That surge explains a big chunk of the profit recovery.
But recovery alone doesn’t explain sustained profitability. Companies used the crisis to tighten belts, cut unnecessary costs, and streamline operations. Many firms improved operating margins by focusing on efficiency — fewer leakages in supply chains, better inventory management, and sharper spending discipline. Those gains stuck even as growth normalised from the initial rebound, lifting net margins into double digits by FY25, particularly in manufacturing.
Policy played a key role too. The Production Linked Incentive (PLI) schemes focused on making things in India — especially in electronics and other high-value manufacturing — gave firms both incentives and confidence to invest and scale up. That boosted domestic manufacturing capacity and exports. Electronics exports, where India is trying to deepen its footprint, benefited from these targeted supports. In short, PLI helped translate the post-Covid demand revival into sustained manufacturing momentum, which fed corporate profits.
Size and sector dynamics matter. Large companies led the profitability story: they had the balance-sheet strength to survive the shock, the scale to cut costs efficiently, and the access to capital to invest quickly when opportunities appeared. Medium and small firms improved their debt servicing and deleveraged, which stabilised their finances, but they still lag in margins and investment pace. Sector-wise, manufacturing delivered steady margins; non-IT services bounced back after a rough Covid period; IT saw moderation in net margins because of slower global demand and higher salary costs.
Another important factor is balance-sheet repair. Many corporates reduced leverage after the pandemic, improving their ability to service debt and invest. Better debt metrics make banks and investors more comfortable, unlocking fresh investment. When profit growth pairs with deleveraging, companies get into a virtuous cycle: stronger profits, higher creditworthiness, more investment, more capacity and exports — and potentially higher future profits.
Will profits keep rising? That depends on activity levels. Profit growth is ultimately driven by real economic activity: consumption, exports, investment. If domestic demand remains healthy and policy support (infrastructure, PLI, stable macro environment) continues to encourage manufacturing and exports, the corporate sector has the foundations to do well. Risks remain — global slowdown, commodity shocks, or overheating in some segments — but the combination of stronger balance sheets, operational improvements, and targeted policy gives a reasonable chance of continued positive momentum.
The near threefold rise in corporate profits since Covid isn’t an accident. It is the outcome of a demand rebound, hard-won efficiency gains, strategic policy nudges like PLI, and balance-sheet repair. Companies that got back on track and consolidated their gains are now better placed to benefit from future growth. If economic activity stays healthy and policy remains supportive, these profits are likely to sustain or even grow — provided firms keep investing in efficiency, capacity and exports.
