India bloomed, doomsayers doomed: PM Modi on 7.8% GDP growth in Q1

India requires an investment rate of 34-35% of its GDP to reach an 8% growth rate, according to Surjit Bhalla, a former member of the Economic Advisory Council to the Prime Minister. Bhalla emphasized the importance of a sharp increase in private investment to boost productivity and ensure long-term expansion at the Elara India Dialogue 2026 in Mumbai.

Currently, India's investment-to-GDP ratio stands at 28-30%, which corresponds to about 6.5% growth. To achieve the desired growth, a significantly higher investment rate is necessary.

Bhalla stressed that the type of investment matters as much as the overall level. Private investment has historically generated greater productivity gains than government spending. However, private investment in India has declined by 5-7 percentage points since 2011-12, creating a substantial gap that needs to be closed to accelerate growth. Public investment, particularly in infrastructure, can provide an immediate economic boost but offers lower returns over the long term compared to private investment.

Bhalla noted that while public investment can temporarily stimulate economic activity, its benefits are often limited in the long run. He highlighted that India will need to rely heavily on domestic investment to meet its 8% growth target, as global trade is unlikely to act as a significant growth driver. The 2015 Bilateral Investment Treaty (BIT) has hindered investment, according to Bhalla, who described it as the most anti-investment treaty globally.

He called for reforms in foreign investment policy and the bilateral investment framework to rectify this issue.

Regulatory reforms and improvements in the ease of doing business are also crucial for revitalizing the investment cycle, Bhalla argued. The Department of Commerce, while not a traditional regulator, plays a significant role in shaping investment decisions. Its policies, alongside those of formal regulators like the Securities and Exchange Board of India (SEBI), greatly influence investment decisions.

Ultimately, Bhalla concluded that the government's policies remain the primary influence on the investment climate in India.