India is investing more than 30% of GDP but failing to regain 8% growth, pointing to weaker capital productivity and an urgent need for reforms, innovation and more efficient investment.
Shaktikanta Das, principal secretary-2 to the prime minister, has argued that India is close to reaching an 8% growth rate, but the numbers suggest the economy still has a productivity problem to solve. Business Standard’s analysis shows that India has hit annual growth of 8% or more only seven times in more than 75 years of national accounts data, and five of those years came after liberalisation. Yet the recent pattern is less encouraging: even with investment levels above 30% of GDP in several years, growth has not returned to that threshold. The implication is that simply pouring more money into the economy is no longer enough; India also needs to get more output from each rupee of capital.
That gap between investment and growth has become more visible in recent years. Business Standard noted that the economy’s strongest recent reading was 7.8% in the first quarter of fiscal 2027, even with an investment rate of 34.3%, which points to weaker capital productivity than in the past. The article argues that a larger share of public spending is now going into infrastructure, where projects take longer to translate into output than in faster-moving parts of the economy. It also says India still compares well with most peers on capital productivity, but trails economies such as Vietnam and Malaysia.
Fresh evidence from industry supports that concern. Business Standard reported earlier this month that gross fixed capital formation in factories fell 8% in fiscal 2025, the first decline since the pandemic year of fiscal 2021. Even so, manufacturing employment rose to a record, suggesting factories were expanding by adding workers to existing capacity rather than building new productive assets. That pattern fits a broader slowdown in fixed capital per worker, which can lift headcount without delivering the same boost to long-term efficiency.
The problem is not confined to factories. In August, Business Standard cited the Economic Advisory Council to the prime minister as saying foreign-owned firms have reduced their investment intensity since fiscal 2020, even as Indian business groups have increased theirs. The OECD has also pointed to infrastructure gaps, skill shortages and high informality as structural barriers to faster, more balanced growth. Separately, the International Monetary Fund has said stronger innovation could lift India’s productivity growth sharply, particularly if services continue to adopt digital technology while manufacturing and agriculture catch up. Taken together, the various assessments suggest India’s next growth phase will depend less on headline investment rates than on how effectively capital is deployed, and on whether reforms can raise the economy’s underlying efficiency enough to sustain 8% expansion.
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