Private sector investment must lead next growth cycle: FM Sitharaman

Sitharaman calls for private investment and higher R&D spending to drive India's next growth phase, strengthen innovation and build resilience amid global uncertainty

Private investment must take the lead in India’s next growth cycle, with the private sector also stepping up spending on research and development (R&D), Finance Minister Nirmala Sitharaman said. She said building resilience against a more uncertain global economy would require India to translate the capacities created over the past decade into higher productivity, employment and economic opportunity.

 

“Private investment must now lead the cycle, including in research and innovation,” Sitharaman said at the opening day of the Kautilya Economic Conclave organised by the Ministry of Finance.

 

India’s R&D expenditure is currently 0.83 per cent of GDP, compared with 2.7 per cent in OECD economies, while the private sector accounts for only 36 per cent of the country’s total R&D expenditure.

 

“Raising both the scale of investment and private sector participation is essential to strengthening our innovation capacity,” she said.

 

The government had announced a ₹1 trillion Research, Development and Innovation (RDI) Fund in the interim Budget for 2024-25 (FY25) to encourage greater private-sector spending on R&D. The scheme is aimed at supporting a shift from “Made in India” to “Imagined and Made in India”, Sitharaman said.

 

She identified strategic resource security, continued global economic openness and skill development as other priorities for India as the global economy enters a period of greater uncertainty.

 

“Uncertainty is now a standing condition of the global economy, and policy must be designed around it,” Sitharaman said, adding that building resilience was not a one-time exercise.

 

Strategic resource security, she said, would have to become a central part of macroeconomic policy as supply chains optimised solely for cost could carry hidden vulnerabilities. India has launched the National Critical Mineral Mission, Rare Earth Corridors and India Semiconductor Mission 2.0, while also focusing on small modular reactors, she said.

 

But greater resilience should not come at the cost of global economic openness, Sitharaman said.

 

“Global economic relationships must also remain open, predictable, and rules-based,” she said, calling for dialogue and negotiated agreements rather than allowing geopolitical differences to become barriers to trade and investment.

 

International trade policy should provide greater certainty to businesses, respect national development priorities and avoid unnecessary restrictions that fragment markets, she said.

 

Sitharaman said India had come through the shocks of the past four years with its economic fundamentals intact and strengthening. Real GDP grew 7.8 per cent in Q1FY27, while gross non-performing assets of banks were at multi-decadal lows and foreign exchange reserves stood at around $766 billion, she said.

 

The global economy, however, is facing sharper versions of familiar vulnerabilities, including crude price spikes, tighter US monetary conditions and rising trade barriers, alongside conflicts and disruptions to the physical movement of oil and gas.

 

India’s resilience has been built through a combination of household-level measures, access to finance, banking reforms, infrastructure creation, economic reforms, price stability and fiscal prudence, Sitharaman said.

 

The government has budgeted ₹12.22 trillion in capital expenditure for FY27, while effective capital expenditure, including grants for creation of capital assets, stands at ₹17.15 trillion, or 4.4 per cent of GDP. The fiscal deficit is budgeted at 4.3 per cent of GDP in FY27.

 

The International Monetary Fund projects India’s general government debt to decline from 83.4 per cent of GDP in 2026 to 77.7 per cent in 2031, she added.

 

Sitharaman said the next test was to convert the capacities built over the past decade into higher productivity, better employment and wider economic opportunity.