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India’s Investment-led Revival

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July 25, 2022

Why in news?

The Finance Minister, Nirmala Sitharaman, said that India’s long-term growth prospects are embedded in public capital expenditure programmes.

What is the picture of India’s investment pattern?

  • Post- Independence- Public investment-led economic growth forms a credible strand of explanation for India’s post-Independence economic growth.
  • Post Asian financial crisis - When India was faced with a slow-down after the Asian financial crisis of 1997, the government initiated public road building projects.
  • The Golden Quadrilateral  and the Pradhan Mantri Gram Sadak Yojana sowed the seeds of economic revival
  • In the 2000s- It culminated in an investment and export-led boom in the 2000s and the GDP grew at 8%-9% annually.
  • In the 2010s- In comparison, the investment record during the 2010s has been poor.
  • Recent status- However, a recent uptick is evident in the real gross fixed capital formation (GFCF) rate where the the fixed investment to GDP ratio recovered to 32.5% in 2019-20 from a low of 30.7% in 2015-16.
  • As in the June edition of the Ministry of Finance’s Monthly Economic Review, the fixed investment to GDP ratio was 32% in 2021-22.


What is the status of gross capital formation?

  • Over 90% of gross capital formation (GCF) consists of fixed investments.
  • The investment distribution has hardly changed over the last decade, with the public sector’s share remaining 20%.
  • Between 2014-15 and 2019-20, the shares of agriculture and industry in fixed capital formation/GDP fell.
  • Services’ share rose to 52.3% in 2019-20 and the rise is almost entirely on transport and communications.
  • For healthy domestic output growth, there is a need for balance between directly productive investments (in farms and factories) and infrastructure investments.

What is the issue with manufacturing?

  • Fall in investment- The share of manufacturing in the investment ratio fell from to 16.5% in 2019-20.
  • Failure of ‘Make in India- The ‘Make in India’ failed to take off, import dependence went up, and India became deindustrialised.
  • India’s position did go upto 63 in 2019 in Ease of Doing Business Index, but “Make in India’ failed to boost industrial investment.
  • Import dependence- Import dependence on China is alarming for critical materials such as fertilizers, bulk drugs and capital goods.
  • This became acute during the COVID-19 pandemic, as China imposed export restrictions prompting the Prime Minister to announce the ‘Atmanirbhar Bharat’ campaign.
  • Foreign capital- The contribution of foreign capital to financing GCF fell.
  • With declining investment share, industrial output growth rate fell to a negative 2.4% in 2019-20.

What scope does public investment hold in this scenario?

  • Public investment is the pivot of the ongoing investment-led economic revival.
  • The recent upturn in the aggregate fixed capital formation to GDP ratio is positive, though the rate is still lower than its mark in the early 2010s.
  • The budgetary figures refer to financial investment indicating expansion of the economy’s productive capacity.



  1. https://www.thehindu.com/opinion/lead/weighing-in-on-indias-investment-led-revival/article65678946.ece
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