Post 1991 liberalisation, public investment share declined while private increased, but not enough

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Published: March 23, 2018 6:31:33 PM

The share of public investment in India's GDP has reduced to just 7% from 12% over time even as historically both public and private investments have contributed equally to total investment, says the World Bank.

The share of public investment in India’s GDP has reduced to just 7% from 12% over time. (Image: Reuters)

The share of public investment in India’s GDP has reduced to just 7% from 12% over time even as historically both public and private investments have contributed equally to total investment, the World Bank said. In a long-term analysis of India’s economic growth, the World Bank found that peaking at 12.7% of GDP between 1986 and 87, public and private investment started to diverge, with public investment accounting for only approximately 7% of GDP in recent years, as compared to private investment which contributes over 20%.

 

The World Bank has also highlighted that the privet investment, despite higher share has remained subdued which is worrisome. “India is constrained by several factors. Issues relate to past leverages, credit availability, market demand, and policy certainty… To spur the rate of investment, the private sector needs to be de-risked and policy certainty ensured,” the World Bank said in its half-yearly India Development report.

Graph: World Bank

“The approach would necessitate seeking an efficient mix of public and private resources to finance India’s long-term investment needs,” the World Bank added. It also said that for India to accelerate its pace of economic growth from a comfortable 7.5% level to 8% to achieve the middle-class country status in 30 years would require a slew of reforms, which also includes addressing challenges to public sector effectiveness.

The World Bank said that demands of the growing middle class will be hugely dependent on the public sector and its effectiveness is key to ensure that reforms are effectively implemented. “Current public spending is much less effective that it could be suggesting an emphasis on outcomes and efficiency is warranted rather than simply spending more money on problems that require better performance by public sector service providers.”

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