As growth slows & capex falls, Economic Survey suggests prioritising ‘efficient’ investment

New Delhi: At a time when growth is slowing and the government’s own capital investment is lower than budgeted, the latest Economic Survey has said the Centre needs to prioritise more efficient use of investments rather than just increasing the amount.

The Economic Survey 2024-25, tabled in Parliament by Finance Minister Nirmala Sitharaman Friday and prepared by Chief Economic Adviser V. Anantha Nageswaran, predicted India’s economy would likely grow at the rate of 6.3-6.8 percent this financial year.

However, it also acknowledged that India needed to grow at more than 8 percent a year—“for at least a decade”—to achieve its economic aspirations. In order to boost India’s growth, the survey said conventional wisdom pointed towards an increase in investment.

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“To achieve a sustained rise in living standards, the Indian economy will need to grow by around 8 percent in real terms every year for at least a decade,” the document said. “Achieving this growth will require an increase in the investment rate to around 35 percent of GDP from the current level of around 31 percent.”

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The statistical appendix presented alongside the Economic Survey showed that India’s investment rate—as measured by the ratio of gross fixed capital formation to GDP—in 2024-25 was expected to drop to a three-year low of 30.1 percent from 30.7 percent in 2022-23 and 30.8 percent in 2023-24.

The document did not provide a breakup of how much of this was from the private sector and the government for 2023-24 and 2024-25.

Also read: India to grow by 6.3-6.8 percent in FY26 : Economic Survey

‘Global economy transitioning…rethink’

The survey also pointed out that the scenario had now changed, which should encourage a rethink of this conventional strategy.

“The global economy is now transitioning to a phase where the traditional, fundamental policy levers that were once effective may no longer be applicable or even relevant,” the survey said, adding. “Across the world, the focus of policymaking globally has shifted inwards.”

It added the earlier promise of shared benefits from a globalised world with open trade, free flow of capital and technology, and a “sanctity for rules of the game” may be behind us. “It is as unwelcome and unfortunate as it is real,” the Economic Survey noted.

In this new reality, the document said—while noting that it did not suggest India close itself to the world—that expectations of the external sector’s contribution to India’s economic growth must be realistic. Instead, India needed to intensify its efforts on the domestic front.

“It means that raising the efficiency of investment matters more for economic growth than raising the investment rate,” the survey pointed out. “The investment efficiency rate is improved by reducing the time taken for investment to generate output and by generating more output per unit of investment.”

This, it added, would require concerted action spanning multiple aspects of India’s regulatory framework. These included assessing the actual or “true” cost of regulation, undertaking systematic deregulation to reduce or remove these costs by liberalising standards and controls, and designing policy aimed at reducing the cost of doing business for citizens and businesses alike.

“India must pursue economic growth by undertaking policy actions that enhance economic freedom, i.e. citizens’ unhindered ability to pursue legitimate economic and entrepreneurial aspirations,” the survey added.

(Edited by Tikli Basu)

Also Read: Nirmala Sitharaman tables Economic Survey 2024-25, Parliament adjourned for the day

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