Sluggish investment is holding India back

By Tom Easton

Strong headline growth, and the possibility of offsetting China as a location for global production, have raised expectations for India. It is the world’s fifth-largest economy, and potentially larger than Germany by 2025, so it would be reasonable to assume that businesses, foreign and domestic, are pouring in cash. New factories pumping out iPhones, wind turbines and batteries suggest they are.

But behind the headlines the reality is more subdued. Investment as a fraction of GDP, which exceeded 40% in 2008, is now 34%, says Barclays, a bank. The money is not going into factories, research and other parts of private business, but rather infrastructure, often with government involvement. According to one recent estimate, 36.5% of bank-sanctioned funding is for roads and bridges and another 20% for power. Chemicals, often an indicator for broader manufacturing, represent just 2.3%, down from 3.4% over the past decade. Foreign portfolio investment only recently turned positive after more than two years of outflows, and foreign direct investment fell by 16%, to $71bn, in the fiscal year to March 31st 2023.