In the midst of slow paced global economy growth and unstable financial markets, India is
standing as a refuge to macroeconomic stability and highest growth nation among large
economies with its 7.6% growth rate in FY2015 and estimated 7.75% in FY2016. However,
given its vibrant democratic institutions, the growth rate is lower than its 8% – 10%
potential growth rate as anticipated by various studies. In this context, the important
question is what factors are hindering India to achieve its potential growth rate and how to
The solution to the above question can be traced from the GDP calculation formula using
Expenditure Method. According to this method, GDP is the sum of – Consumption,
Investment, Government expenditure and Net exports. India’s is a consumption led growth
rather than investment led as is the case of China’s. In the overall GDP, share of
Consumption is 72%, Investments nearly 30% and net exports (-) 2.6%. This is in contrast
with the China’s where the Investment proportion is nearly 48% of its GDP. In fact post
2008 crisis Investment share of India has declined much more than the average decline in
the Lower Middle Income countries.
Having established the fact that the Investment share in GDP of India is lower, the next
question is do we need bold capital investments to achieve its potential growth rate. The
answer would be assertive as the period 2000-07, which was characterized by higher
investments compared to consumption led growth model, had witnessed very high growth rates.
Being the bright spot in the present turbulent economy and to maintain this in the long run,
India has to make bold investments mainly in four areas – Agriculture, Infrastructure,
Social Infrastructure and Technology.
Yield per hectare is very low in India compared to other emerging economies like Brazil,
China though India’s inputs consumption is very high. In this regard, investments have to
be made in R&D to develop quality seeds, micro irrigation infrastructure and efficient
harvesting methods to generate more yields with less water and fertilizers, and thus
improving productivity and soil health. In addition to these, India also needs huge
investments in food processing and quality check laboratories in order to enhance food export.
As the world focus shifted from millennium development goals to sustainable development
goals, India’s ‘Smart Cities’ initiative is merited. In addition to this, the focus has to be on
generating sufficient energy using renewable resources keeping with the pace of energy demand.
To attract large capital inflows, a country needs better infrastructure, knowledge economy
and ease of doing business policies. India can leverage its demographic dividend to grow at
a double digit rate. To achieve these demographic dividends, India has to invest on its
people – in terms of health and sanitation, education, and skill development. It is found out
that India has a large force of unskilled labour doing unproductive jobs and the availability
of vocational trainers is also very low in the training institutes. This issue can be addressed
using the highly penetrated mobile technology itself. Under the Digital India and Skill India
missions, leveraging the digital infrastructure ‘anywhere anytime training programmes’
can be launched.
For all these to be done efficiently and effectively, technology plays a key role and investing
in it makes India to achieve its potential. The JAM (Jan dhan, Aadhaar, and Mobile) trinity
helps to provide targeted subsidies rather than universal ones eliminating leakages. This
requires laying sophisticated optic fiber cables across the country. This layout also helps in
implementing GST and also abiding to the Trade Facilitation Agreement that requires
automation of customs clearance.
Bold capital investments enable India to achieve its potential and sustainable growth rates
by improving the standard of living of its people. This moves India to the Upper Middle
Income countries. Nevertheless, India has to do this by maintaining fiscal discipline
following FRBM Act, containing inflation in the tolerable levels, and also improving its