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The Year Ahead

India’s World-Beating Growth Hides Troubling Investment Trend

The private sector isn’t picking up the slack as fiscal stimulus winds down.

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Photo Illustration: 731; Photos: Debajyoti Chakraborty/NurPhoto/Zuma Press; Kiyoshi Ota/AP Photo; Narinder Nanu/AFP/Getty Images

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.