New Delhi, March 31 -- India has emerged as the world's fastest-growing major economy. Its macroeconomic fundamentals are sound, corporate balance sheets have strengthened and the health of its financial sector has improved. Despite these promising trends, private investment growth has not taken off and India's share of global foreign direct investment (FDI) inflows has fallen.

To be fair, private investment in India has been solid compared to peer countries, at about 23% of gross domestic product (GDP). But investment in machinery and equipment, critical for expanding India's productive capacity, has remained sluggish. Perhaps more importantly, India's private sector capital stock sits at a mere one-third of the average emerging market,...