The capacity utilisation of Indian factories needs to rise to 79-80% and remain at that level for at least three quarters to induce the private sector to ramp up the investment ratio in the economy, according to a new analysis.

India’s capacity utilisation — a measure of how intensively factories in India are being used — stood at 75.8% as of the April-June 2025 quarter, according to data from the Reserve Bank of India.

The analysis, conducted by the economics research wing of the Bank of Baroda, looked at India’s capacity utilisation rates and compared them to the level of gross fixed capital formation (GFCF) in the economy since 2010.

The idea is that the more intensively companies use their existing facilities, the more likely they are to invest in additional capacity. 

“It can be said that capacity utilisation rates need to be maintained in the range of 79-80% for three successive quarters to reach a GFCF rate of 34-35%,” the research report said.

The Parliamentary Standing Committee on Finance had in August noted that India would need an investment rate of 35%, up from the current 31%, if it wanted the economy to grow consistently at 8%.

The Bank of Baroda researchers pointed out that without a higher capacity utilisation rate, manufacturing in India would not be able to grow fast enough and so the dependence on construction activity to drive GFCF would only increase.

“Such investment must be driven by the private sector as there are limits to which government capex can push the envelope,” the report said. “The GFCF in value terms was ₹99 lakh crore in FY25 and with overall capex of the centre and states to be around ₹22-23 lakh crore this year, the balance must come from the private sector.” 

The report also noted that the last time the rate of GFCF was 34-35% was in March 2011, which also coincided with the capacity utilisation rate crossing the 80% mark.