| Syllabus: GS-III, Subject: Economy, Topic: Growth and Development, Inclusion, Issue: Savings – Types, trends and factors |
Context: Private investments, as measured by private Gross Fixed Capital Formation (GFCF) as a percentage of gross domestic product (GDP) is not picking up
Gross Fixed Capital Formation (GCFC):
- Indicates the growth in the size of fixed capital in an economy, including private and public investment.
- Fixed capital, such as buildings and machinery, contributes to economic growth by increasing productivity and output.
Reasons for low private investment:
- Some economists attribute low private investment to low private consumption expenditure, suggesting boosting consumer spending to stimulate investment.
- However, historical data in India shows an inverse relationship between consumption and investment, suggesting that higher savings and investment come at the cost of lower consumption.
- Structural problems and policy uncertainty are cited as significant reasons for the decline in private investment.
Conclusion:
- Low private investment could lead to slower economic growth, affecting output.
- Government investment may compensate for low private investment but can lead to inefficiencies and tax burdens.
| +1 advantage for mains (Data point)·         In India, private investment significantly increased after economic reforms in the late 1980s and early 1990s, overtaking public investment.
·         Private investment rose until the global financial crisis of 2007-08, then declined, hitting a low of 19.6% of GDP in 2020-21. |
