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The investment puzzle

Sustainable demand revival will need policy certainty

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Business Standard Editorial Comment | Investments in India | India GDP

Business Standard Editorial Comment  |  Mumbai 



Demand destruction caused by the pandemic and associated restrictions seemed to have moderated over the past year, with the resumption of mobility and trade. This had led to hopes that private investment in the economy would revive, putting a growth recovery on firmer footing. The Indian economy in recent times — indeed, for years even prior to the pandemic — had suffered from the unwillingness of private capital to increase investment. As a proportion of gross domestic product (GDP), gross fixed capital formation has never reached the sustained high levels observed in the high-growth years of the 2000s. But there appeared to be a clear uptick in the trend, with its share of real GDP improving to 34.7 per cent in the first quarter of 2022-23 as compared to 32.8 in the equivalent quarter of the previous year. Some had hoped this uptick was driven by a similar increase in the share of private demand — private final consumption expenditure as a share of real GDP was over 3 percentage points higher in the first quarter than it was in the equivalent pre-pandemic quarter. Yet another explanation might simply be that both shares are responding to a fall in government expenditure as a fraction of GDP.

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First Published: Thu, September 15 2022. 22:30 IST

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