Public investment remains an important driver for India’s growth, says IMF

Posted 01 May 2024

2 min read

Public investment usually refers to gross fixed capital formation (total value of acquisitions, less disposals, of fixed assets) by the state, whether through central or local governments or publicly owned industries or corporations.
It encompasses physical or tangible investment in infrastructure (such as transport, telecommunications, and buildings), but in a broader sense, it can include human or intangible investment in education, skills, and knowledge.

Impact of public investment on economic growth
- Enhances demand: Stimulates economic activity through short-term effects on aggregate demand,
- Raises productivity: Better infrastructures and human capital can enhances the productivity of the economy.
- Attracts private investment: Encourages new private investment to take advantage of the higher productivity it creates. These further increases economic growth.

However, the positive relationship between public investment and growth could turn negative once public capital starts crowding out private investment.
- The term "crowding out" refers to a phenomenon where increased government spending funded by higher taxes and enhanced borrowing reduces private sector income and loan demand (due to a rise in interest rates).

Most of the sectors are open for 100% cent FDI under the automatic route
PM Gati Shakti National Master Plan (NMP) for providing multimodal connectivity infrastructure to various economic zones.
National Monetisation Pipeline for tapping private sector investment for new infrastructure creation.
Reducing compliance burden on citizen and business activities.

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