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

Chief Economic Adviser K V Subramanian Thursday said India needs to accelerate investment in excess of 35 percent of the GDP to achieve 8 percent sustained growth which is essential for becoming a USD 5 trillion economy by 2024-25. "The investment as a percentage of GDP has to be in excess of 35 percent. In fact, China, for instance, reached 50 percent of GDP. Definitely, we need to invest close to 35 percent," he said here.

Currently, the country's investment level as a percentage of GDP is 29.3 percent, he said. "From 29-odd if we get to mid-30s we will really get into a 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 percent. 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 catalyzed and supported by a favorable demographic phase, he said.

India's economic growth is expected to rebound from a five-year low to 7 percent this year, the survey said. Investment, especially private investment, is the 'key driver' that drives demand, creates capacity, increases labor 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. "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.

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