India’s Investment-Led Growth: A Roadmap to Viksit Bharat

Syllabus: GS3/Economy

Context

• NITI Aayog Vice-Chairman Ashok Kumar Lahiri recently said India needs to significantly improve its investment rate to maintain its growth momentum.
• The launch of the Investment Friendliness Index (IFI) is a major step in helping states to build an investment-friendly ecosystem.

Why Higher Investment Matters?

• India is the fastest growing major economy in the world, with average real GDP growth of 6.1% in FY1992-FY2025.
  • Investment is a major driver of economic growth, increasing productive capacity, creating jobs and generating demand.
• It needs to maintain an average annual real GDP growth of 7.8% over the next two decades to become a high-income economy by 2047 (World Bank).
• India’s growth has been more than 50% investment driven, demonstrating the centrality of investment in growth since the 1991 economic reforms.

Significance of Public Investment

• Stimulates Economic Activity and Demand: Investment by its very nature creates demand through employment, incomes and consumption.
  • Infrastructure projects have multiplier effects across sectors through procurement and construction and allied industries.
• Crowding in Private Investment: Better infrastructure, policy certainty and ease of doing business motivate domestic and foreign investors to opt for productive investments.
• Boosts long-term productivity: Investments in transport, logistics, energy, digital infrastructure and human capital reduce production costs and boost competitiveness.
• Encourages Balanced Regional Development: Public investment in backward areas decreases regional inequalities by improving connectivity, industrialisation and access to public services.
• Supports Job Creation: Construction, manufacturing and logistics are infrastructure-heavy sectors that create skilled and unskilled job opportunities.
• Boosts India’s Competitiveness on the Global Stage: Strong infrastructure and governance make India a more attractive destination for global manufacturing and investment.

Related Issues and Concerns

• Low Investment Rate: India’s investment rate is still in the region of around 25% of GDP, which is far below the levels reached by East Asian economies in their high growth periods.
  • But it is far from China’s during its high-growth phase when it spent nearly 50% of GDP.
• Disparities at the State Level: Infrastructure quality, regulatory efficiency, governance capacity and policy implementation vary widely across states.
• Private investment slowdown: Private capital expenditure continues to be under pressure from global uncertainty, weak demand and risk aversion.
• Constraints on Infrastructure Financing: Big infrastructure projects require enormous long-term financing, while fiscal constraints limit public spending.
• Regulatory and Procedural Bottlenecks: Project execution is affected by issues such as land acquisition, delays in contract enforcement, environmental clearances and compliance burdens.
• Global Economic Headwinds: Protectionism, geopolitical tensions and supply chain disruptions are creating uncertainties for investment flows.

Key Efforts and Initiatives

• Investment Friendliness Index (2025): Developed by NITI Aayog to assess the investment ecosystem of states and promote data-driven policy reforms.

• National Infrastructure Pipeline (NIP): Long term infrastructure investment programme to develop transport, energy, urban and social infrastructure.
• PM Gati Shakti National Master Plan: Digital platform based on GIS for infrastructure planning across ministries for improved multimodal connectivity.
• National Monetisation Pipeline (NMP): Unlocks value of existing brownfield public assets to fund creation of new infrastructure.
• Production Linked Incentive (PLI) Scheme: It offers performance-linked incentives to promote investment in manufacturing in strategic sectors.
• Ease of Doing Business Reforms: The reforms related to digital approvals, labour reforms, faceless tax administration and single window systems are targeted at improving the investment climate.
• Asset Creation through Capital Expenditure: The Union Government has always accorded the highest priority to capital expenditure in the recent Budgets to boost infrastructure-led growth.

Way Forward

• Boost the rate of investment through continued public capital expenditure and greater private sector involvement.
• Improve the quality and efficiency of public expenditure through timely implementation of projects and better use of assets.
• Strengthen cooperative federalism by allowing states to adopt best practices identified through the Investment Friendliness Index.
• Increase investor confidence by simplifying regulation, providing policy stability and improving contract enforcement.
• Scale up financing of infrastructure through development finance institutions, municipal bonds and public-private partnership.
• Concentrate on green infrastructure, digital public infrastructure and innovation-led investments to encourage sustainable and inclusive growth.
• Investments should be focused on lagging states and aspirational districts to promote balanced regional development.

Source: New Indian Express