Indian companies now turn raw materials into cash from sales much quicker than they did nine years ago—a direct result of the government's three-pronged strategy of tax reforms, infrastructure upgrades, and mass digital adoption, according to experts.

While the pandemic briefly reversed these gains with supply shocks, companies have since recovered.

The analysis is based on a rolling sample of firms, with the most recent data covering 1,117 companies compared to about 3,000 in other years.

A sectoral analysis shows that textiles, automobiles, electronics and machinery led working capital cycle gains in the core manufacturing sector. In the services sector, healthcare, hospitality, and shipping and transport recorded the sharpest efficiency gains over the past decade.

But on a concerning note, the consumer goods sector's working capital cycle was 65 days in FY25, above the FY16-level of 40 days, signalling that consumption in India is yet to recover from the covid-19 pandemic

A post-pandemic bounce

Several companies had realised much of their efficiency gains in the pre-pandemic era itself as the government implemented its first wave of GST reforms during FY18 and FY19.

While initially disruptive, measures like the input tax credit system improved cashflow transparency and predictability in the supply chain, said Ankush Sheth, partner at Vector Consulting Group.

Moreover, with a stronger fiscal position, the government started processing tax refunds faster, helping companies unlock more cash, added Ranen Banerjee, partner and economic advisory leader at PwC India.

This resulted in a virtuous cycle of quicker repayments across the supply chain, reducing India Inc's collection and repayment cycles by a week between FY16-19.

In addition, the government's infrastructure improvement efforts resulted in quicker procurement of raw materials and faster distribution of finished goods across the country, said Banerjee.

Corporate India also went through a massive digital transformation post the pandemic, enabling companies to track inventory in real time, optimize their supply chains, and ultimately reduce their production time.

Corporate spending on technology has increased nearly fourfold since FY16, resulting in a dramatic improvement in operational efficiency, added Sheth. "This directly translated into holding less stock and getting paid faster, which is the essence of a shorter working capital cycle."

AI-powered gains

Sheth expects the next wave of efficiency improvements to be powered by artificial intelligence as companies redesign supply chains to operate faster and leaner, with real-time agility.

AI-powered platforms would predict supply chain disruptions more accurately, flag possible machinery failure, and even price finished goods dynamically based on real-time sales velocity and inventory, he added.

This, he expects, would eliminate large buffer stock holdings of raw materials, prevent unscheduled production line shutdowns, and maximise cash recovery from finished products, slashing turnaround times across the production cycle significantly.

"As AI becomes more accessible, adoption will spread across the organised sector and begin reshaping working capital cycle gains by 2030," said Sheth. "Semi-autonomous supply chains might become the industry standard for both large and mid-sized companies in the new decade."

However, Anitha Rangan, chief economist at RBL Bank, said such efficiency gains might not be visible across India Inc initially. She expects automation-heavy manufacturing sectors like automobiles, high-end electronics, and heavy machineries to realise these gains faster than labour-intensive sectors.

PwC's Banerjee predicts consumer-facing sectors such as consumer durables and fast moving consumer goods (FMCG) will benefit the most from AI.

These sectors run on thin margins, juggle complex product ranges and high volumes, and rely on quality for brand acceptance. Hence, "every gain in efficiency would be vital for their profitability," he said.

Short-term pain, long-term gains

The current run of weak consumer demand could delay any efficiency gains as companies typically invest in upgrades when business confidence is strong, said analysts.

Nuvama Institutional Equities in a 29 August report downgraded its earnings expectations for all BSE-500 companies in FY26 by 2% following their first-quarter (April-June) earnings.

The brokerage's analysts expect demand to stay weak through FY26 due to US tariff pressures, reduced government spending, fragile household incomes, and tepid credit growth.

While deferred purchases as a result of weak demand could see inventory pile up, the GST rationalisation plan could stretch India Inc's working capital cycle and add to their challenges in the short run, RBL Bank's Rangan said.

"Consumers will delay purchases of textiles, footwear and electrical durables until the proposed changes take effect," Rangan said. "But this rationalisation will simplify operations, end input credit losses across sectors, and improve (India Inc's) efficiency over time."