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Importance of Public Investment for India’s Economic Growth

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  • Last Updated : 05 Aug, 2022
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If you take a closer look at the economic growth of any nation, you’ll find that it is mainly driven by the investments made in development works. However making huge investments in any economy is as not easy as it sounds, as huge investment can’t be done by a single person, it usually involves a group of people (investors). However still any private organization of an individual can’t invest much, thus in such a case, public investment becomes quite important. The public investment not only benefits the netizens by providing them better services at a cheaper rate but also boosts the economic growth of a nation.

For the financial year 2022-23, the Government of India has decided to increase the share of public investment by 35%.

What do you Mean by ‘Public Investment’?

Investment is broadly classified as public investment and private investment, Public investment is an investment made by the central or the state government for the public welfare. While an investment made by an individual, or a group of private investors is known as a private investment. Public investments are made in some specific sectors by revenue collected from the taxes. In India, public investment is mainly done in the sectors like agriculture, infrastructure, health, education, etc. 

The public investment contributes around 2.2% to the GDP of India which is likely to increase up to 2.9% by 2023.

Major Sectors of ‘Public Investment’ in India:

  •  Agriculture: India is an agriculturally rich nation and the majority of the Indian population is employed in this sector. Despite being one of the major sectors contributing to the GDP of India, it has somehow failed to attract private investment. However, this sector receives plenty of public investment each year both from the state and central governments of India. Some of the major reasons behind investment in the agricultural sector are the long-term potential, sustaining natural resources, and acting as a physical asset.
  • Infrastructure: Infrastructural development has now become quite crucial for any economy as a nation with good infrastructure is more likely to attract higher FDIs. In India, there is the private sector’s dominance in investment in infrastructure. However, the central government of India did increase the public investment in infrastructure development by 10%, but still, there is a need for public investment in this sector.
  • Healthcare: Similar to the infrastructural sector, investment in the healthcare sector is also dominated by private investors. But not everyone can afford private hospitals, thus a decent public investment in the healthcare sector is needed. The government of India is increasing its spending on healthcare each year by investing around 1.8% of the nation’s GDP in 2020-21 and around 2.1% in 2021-22. But still, Indian healthcare is not refined and needs more public investment. 

Sectors with a Need for Public Investment:

  • Defense: The defense sector is the only sector in which investments are made by the government only, any private investor can invest in this sector but not directly. Any individual investor can invest in the defense sector in India by providing any kind of service with the permission of the GOI. The public investment in the defense sector is been increased several times but, still, there is a need for more public investment in this sector, as it’s a matter of national security.
  • Education: Public education in India needs a huge investment as its present condition is not so well, even after many educational reforms. Public investment in education is a long-term investment, that brings fruitful results for the nation in the future. India contributes only 3% of its GDP to its education sector, and it’s been constant for more than 10 years, thus there is a need for more public investment in this sector. 
  • Service: The service sector is the most highly contributing sector to the GDP of India and the GOI invests a huge sum of money in this sector. But in recent years the unemployment rate in India increased from 5.44% in 2014 to 7.8% in June 2022. Thus to reduce the unemployment rate and boost the Indian economy, public investment is quite important.

Importance of Public Investment in the Indian Economy:

  • Public investment has the potential to improve the infrastructure of a nation and thus attract more foreign direct investment (FDI).
  • Public investment plays a crucial role in decreasing unemployment and generating new jobs. It is believed that every million dollar investment generates 6-8 new jobs.
  • The public investment in the industrial sector increases the production capacity of India and thus increases the GDP of India. 
  • Public investment is quite crucial for the people living in rural areas. Investment in this sector helps in reducing poverty promotes agri-business, and also increases the annual agricultural produce of the nation.
  • Public investments also provide tough competition to the private investors and retards their monopoly, offering competitive prices for basic goods and services.
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