Investment in excess of 35 pc of GDP required to push growth to 8 pc: CEA

Chief Economic Adviser KV Subramanian Thursday said India needs to accelerate investment in excess of 35 per cent of the GDP to achieve 8 per cent sustained growth which is essential for becoming a USD 5 trillion economy by 2024-25.

“The investment as percentage of GDP has to be in excess of 35 per cent. In fact, China for instance reached 50 per cent of GDP. Definitely, we need to invest close to 35 per cent,” he said here.

Currently, the country’s investment level as percentage of GDP is 29.3 per cent, he said.

“From 29-odd if we get to mid-30s we will really get into virtuous cycle and then we need to sustain at that level,” he said.

Subramanian further said to achieve the objective of becoming a USD 5 trillion economy by 2024-25, as laid down by the Prime Minister, India needs to sustain a real GDP growth rate of 8 per cent.

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International experience, especially from high-growth East Asian economies, suggests that such growth can only be sustained by a virtuous cycle of savings, investment and exports catalysed and supported by a favourable demographic phase, he said.

India’s economic growth is expected to rebound from a five-year low to 7 per cent this year, the survey said.

Investment, especially private investment, is the key driver that drives demand, creates capacity, increases labour productivity, introduces new technology, allows creative destruction, and generates jobs, Subramanian said.

The CEA added that exports must form an integral part of the growth model because higher savings preclude domestic consumption as the driver of final demand.

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“Similarly, job creation is driven by this virtuous cycle. While the claim is often made that investment displaces jobs, this remains true only when viewed within the silo of a specific activity,” he said.

When examined across the entire value chain, capital investment fosters job creation as the production of capital goods, research and development and supply chains generate jobs, he added.