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India’s investment-led revival

Contact Counsellor

India’s investment-led revival

  • India’s long-term growth prospects are embedded in public capital expenditure programmes and an increase in public investment would crowd in (or pull in) private investment, thus reviving the economy.

Lag in investment

  • Public investment-led economic growth is responsible for India’s post-Independence economic growth.
  • A recent uptick is evident in real gross fixed capital formation (GFCF) rate — fixed investment to GDP ratio (net of inflation).
  • Government sustained investment tempo even during pandemic.

On gross capital formation

  • 2014-15 - 2019-20: Shares of agriculture and industry in fixed capital formation / GDP fell.
  • 2019-20: Services’ share rose to 52.3% compared to 49% in 2014-15.
  • For healthy domestic output growth, there is a need for balance between “directly productive investments”and infrastructure investments.

Import dependence grew

  • Manufacturing's share in investment ratio fell.
  • Import dependence on China for critical materials is alarming
  • Instead of boosting investment and domestic technological capabilities, ‘Make in India’ campaign spent time and resources to raise India’s rank in World Bank’s Ease of Doing Business Index.

Conclusion

  • Public investment is pivot of ongoing investment-led economic revival.
  • Lack of domestic capacity for essential raw industrial materials and capital goods could prove costly.
  • It will test India’s ability to withstand external economic challenges.

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