Flagging FDI: India must find ways to attract more of it before it's too late

livemint.com:

Many shall be restored that now are fallen and many shall fall that now are in honour— Horace After having fallen during covid, the Indian economy now finds itself among the most honoured globally. Most high-frequency indicators are firing vigorously and recent headline GDP numbers have been buoyant beyond expectations. A fiscally restrained budget in an election year and sensible policy interventions have ensured that confidence in the economy and the government’s ability to manage it is high, and the stock market is undergoing one of its periodic bouts of exuberance.

But behind the clinking of champagne glasses on Dalal Street and self-congratulatory chatter on social media lies a structural story of India’s economy that’s relatively sombre. Gross capital formation has been stagnant below its past peak for a decade and private capex is still anaemic. With an economic multiplier that is orders of magnitude higher than other forms of spending, capex is critical for India to convert the economy’s upward momentum into a structural trend.

The government, cognizant of this, has been spending furiously on capex in the hope of crowding in the private sector, which has so far been circumspect. Historically, investment has been the fuel that has boosted developing economies to attain the escape velocity required to leave poverty behind and join the middle-income orbit. Unfortunately, India has seen its net household savings rate fall to multi-year lows.