India’s investment rate needs a broad bump-up2 min read 04 Sep 2022, 09:55 PM IST
Capital formation is on an uptick amid disappointing GDP growth, but it remains weak and way too dependent on central spending. We need private investors and states to chip in
The gross domestic product (GDP) numbers presented for the first quarter of financial year 2022-23 have turned out to be slightly below expectations, with real growth at 13.5% belying street predictions as well as Reserve Bank of India projections. Investment activity in the economy, though, is one bright spot within the disappointing haze. Gross fixed capital formation (GFCF), as a proportion of GDP, rose to 29.2% in the three months till end-June, compared with 28.2% in the same quarter the previous year. Even otherwise, GFCF grew by more than 31% over the first quarter of 2021-22, reflecting a step-up in capital expenditure. This should be viewed as a precursor to higher sustainable economic growth. Investment activity has long been seen to give India its long-term growth impetus. Yet, this GFCF uptick has not ignited celebratory fireworks. One critical reason, going by past data, is that investment needs to go above 30% of GDP for economic growth to range above 7% on a year-to-year basis, a necessary and sufficient condition for India to fund its poverty alleviation programmes without running up a large debt bill. We clearly need to do better.