India is chasing the Chinese economy. But something is holding it back.

The Indian economy is booming. Share prices are soaring and are among the best performing in the world. Government investments in airports, bridges and roads, and clean energy infrastructure are visible almost everywhere. India’s total output, or gross domestic product, is expected to rise 6 percent this year — faster than the United States or China.

But there is a problem: Indian companies’ investments are not keeping pace. The money that companies are putting into the future of their businesses, for things like new machines and factories, is stagnating. As a fraction of the Indian economy, it is shrinking. And while money has flowed into Indian stock markets, long-term investments from abroad have declined.

Green and red lights flash at the same time. The government will soon have to cut back on extraordinary spending, which could weigh on the economy if money growth in the private sector does not pick up.

No one expects India to stop growing, but an increase of 6 percent is not enough to realize India’s ambitions. The population, now the largest in the world, is growing. The Chinese government has set a national goal to overtake China and become a developed nation by 2047. That kind of jump requires sustainable growth closer to 8 to 9 percent per year, most economists say.

The missing investment could also pose a challenge for Narendra Modi, the prime minister since 2014, who has focused on making India an easier place for foreign and Indian companies to do business.

Mr Modi is in campaign mode, facing elections in the spring and calling on the nation to cheer his successes. The slow pace of investment is not something executives, bankers or foreign diplomats like to talk about for fear of coming across as naysayers. But investors are playing it safe as the economy signals both strengths and weaknesses.

One point of broad agreement is that India should benefit from the slowdown in China, fueled by a developing real estate crisis. China’s geopolitical tensions with the West provide a new opening for India by motivating foreign companies to shift production in China to other countries.

Sriram Viswanathan, an Indian-born managing partner at Celesta, a Silicon Valley venture capital fund, describes investors as looking to “fill the vacuum that has been created in the supply chain.”

“That, I think, is the opportunity for India,” he said.

The World Bank has applauded India’s commitment to infrastructure spending, which has increased during the pandemic as the private sector needed to be bailed out. Since then, the government has doubled its funding, paying for physical improvements to the rickety roads, ports and electricity supplies that once discouraged business investment.

But the World Bank, whose mission is to boost developing economies, says it’s crucial that those billions in government spending trigger a burst of corporate spending. The economists speak of a ‘crowd-in effect’, which occurs, for example, when a new port next to a shiny new industrial park encourages companies to build factories and hire workers. Last year, the bank said it anticipated an impending crowd-in, as it has expected for almost three years in a row.

“To accelerate the growth of confidence, public investments are not enough,” Auguste Tano Kouamé, the World Bank’s country director for India, said at a press conference in April. “Deep reforms are needed to get the private sector investing.”

A lack of confidence helps explain why stock markets are setting records, even as foreign investors hesitate to invest in the Indian economy through start-ups and takeovers.

Stock markets in Mumbai, India’s business capital, are worth nearly $4 trillion, up from $3 trillion a year ago, making them more valuable than Hong Kong’s. The small Indian investors have had a large part in this, but trading shares is quick and easy, compared to buying and selling companies. A recent annual average of $40 billion in foreign direct investment shrunk to $13 billion last year.

One reason companies are watching and waiting to make investments is Mr. Modi’s powerful national government.

On the one hand, the business community craves stability in political leadership, and India has rarely, if ever, had such a well-entrenched leader. He toppled the main opposition party in three major elections in the Hindi-speaking heartland in December and appears to be a target for re-election this year. And Mr. Modi is decidedly pro-business.

His government is playing a decidedly interventionist role in managing the economy, in a way that could make it dangerous for companies to place their shares.

In August, the government announced sudden restrictions on the import of laptop computers to boost production at home. That sent companies dependent on it into a downward spiral, and the measure was withdrawn almost as suddenly. Similarly, in July the government imposed a 28 percent retroactive tax on online gambling companies, wiping out a $1.5 billion industry overnight.

Companies close to Mr. Modi and his political circle have done particularly well. The most prominent examples are Mukesh Ambani’s Reliance Industries and the Adani Group, conglomerates that span countless areas of Indian life. Their combined market power has grown dramatically in recent years, with each company’s flagship shares worth about six times what they were when Mr Modi became prime minister.

Some smaller companies have been the target of high-profile raids by tax enforcement agencies.

“If you’re not the two A’s” — Adani or Ambani — navigating India’s regulatory environment can be treacherous, says Arvind Subramanian, an economist at Brown University who served as chief economic adviser under Modi’s government from 2014 to 2018 . “Domestic investors are feeling a bit vulnerable,” he added.

The last nine years under the Modi regime have improved many things in the business environment for everyone. Crucial systems work better, many forms of corruption have been curbed and the digitalization of trade has opened new arenas for growth.

“What’s really complex and interesting about this Modi phenomenon is that there is a lot of hype, fuss and manipulation,” Mr. Subramanian said. “But it is built on a core of performance.”

Yet foreign officials charged with bringing billions of investment capital to India complain that many of the traditional pains of doing business in India linger. The most frequently mentioned topic is administrative hassle. Too many officials are involved at every level of approval, and it remains painfully slow to obtain legal rulings, let alone implement them.

Another factor holding back longer-term investment is an underlying weakness in ‘India’s growth story’. The most powerful source of demand, the kind that foreign investors and domestic companies crave, is among the wealthiest consumers. Out of a population of 1.4 billion people, about 20 million Indians are doing well enough to buy European consumer products, build luxury homes and join the top ranks of the auto sector.

Most of the rest of the population is struggling with food and fuel price inflation. Banks provide credit to both types of consumers, but to a lesser extent to companies, which fear that the vast majority of their customers will tighten their belts in the coming years.

“At this point, there is no evidence that investors are feeling reassured about India,” Subramanian said.

But he remains hopeful. The annual growth, even if less than 6 percent, is nothing to sniff at. The new and improved infrastructure should ultimately attract more private investment. And the benefits of consumer wealth, however unevenly distributed, could generate more incomes over time.

The biggest question is whether India can capture a significant share of global trade from China. The best-known example is Apple, the $3 trillion mega-company that is slowly moving part of its supply chain away from China. The expensive iPhone barely accounts for 5 percent of the Indian market. But currently, about 7 percent of the world’s iPhones are made in India — and JPMorgan Chase estimates that Apple plans to increase that to 25 percent by 2025. At that point, anything becomes possible for India.

“We have to keep our minds open,” Mr. Subramanian said.