India has bounced back strongly from the pandemic and stands poised to claim the mantle of fastest-growing economy in 2021 and probably 2022 as well. The government’s latest projections are for a 9.2% expansion in the fiscal year that ends in March. Forecasts from the International Monetary Fund have growth dipping to 8.5% the following year, but even at that slower pace, India is expected to outshine all major economies.
While the headline numbers are impressive, they conceal a troubling trend. Gross fixed capital formation, a measure that encompasses investment in physical assets from plants and equipment to bridges and roads, amounts to less than one-third of gross domestic product, according to World Bank data. In China, it’s more than 40%. Reserve Bank of India Governor Shaktikanta Das remarked in early December that private investment “is still lagging,” which could jeopardize the improvement in aggregate demand.
