India converts every rupee into more growth than China did, but needs to increase investment: NITI Aayog VC
New Delhi, July 17
India extracts more growth out of every rupee it invests than China did during its fastest-growing years -- but that efficiency is not a substitute for higher investment itself, the Vice Chairman of NITI Aayog, Ashok Kumar Lahiri, said on Friday.
Speaking at the release of the Investment Friendliness Index, the Vice Chairman said India's investment rate stands at around 25 per cent of GDP, roughly half of what China invested at the height of its growth boom. Yet India's incremental capital-output ratio, a measure of how much growth each unit of investment generates, is lower than China's, meaning Indian capital is being put to more productive use.
"In a way, you can say that we are using our capital very efficiently," he said. But he was quick to add that efficiency has its ceiling. "No matter how efficient you are, you are not magicians. You can use your investment very efficiently, but you still need more investment. So we need to increase investment."
He said this distinction matters because India's ambitions go well beyond its current growth trajectory. While the country remains the world's fastest-growing major economy, he said that achievement alone won't be enough to meet Prime Minister Narendra Modi's target of a developed India by 2047.
The Vice Chairman also challenged the conventional wisdom that boosting demand is purely a matter of raising consumption. Investment, he argued, is just as powerful a driver of demand, making the case for higher investment a growth argument on two fronts at once.
He stressed that the burden of lifting investment falls largely on state governments, not the Centre. "Much of what has to be done has to be done by the states," he said, noting that factories and industrial capacity are ultimately built on state soil.
This point framed NITI Aayog's newly released Investment Friendliness Index, which benchmarks states on their investment climate. He described it not as a competitive "horse race" but as a diagnostic tool -- one meant to show states, whose chief ministers all sit on NITI Aayog's governing council, where they are doing well and where they need to improve, using both perception surveys and hard data.
He pointed to Kerala, Madhya Pradesh and Odisha as states offering distinct lessons for others, framing peer learning as central to lifting investment nationwide.
He closed his remarks by tying the message to global uncertainty. "The geopolitical situation has got enough uncertainties, but the time to act is now, now and here, not tomorrow," he said.
— ANI
Reader Comments
Finally someone acknowledging that consumption alone won't drive demand! Investment creates jobs, jobs create income, income creates demand. It's a virtuous cycle. But the real question is: are our states ready to compete for investment? The Investment Friendliness Index could be a game-changer if states take it seriously.
"Now, now and here, not tomorrow" - that's the spirit we need! But I'm a bit skeptical about this efficiency claim. Yes, our ICOR might be lower than China's, but that could also mean we're simply not investing enough in high-growth sectors. We need both: more investment AND better allocation. Let's not pat ourselves too much on the back.
The state-level focus is crucial. We've seen how states like Gujarat and Tamil Nadu attracted investment through policy reforms and infrastructure. But let's be honest - red tape, land acquisition issues, and power costs still plague many states. The Index should come with clear rankings but also action plans for laggards. Peer learning is great, but we need shame too sometimes!
Honestly, this is refreshing. We often hear about China vs India, but rarely about how efficiently we use our capital. But the 25% investment rate is worrying - we need it closer to 35% at least. The private sector needs more confidence. GST simplification, faster court cases for business disputes, and stable policies would help more than just indices.
The geopolitical uncertainty angle is very real. Global supply chains are shifting and India needs to seize the moment. But "now, now and here" won
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