25 March 2025 : Daily Answer Writing

Q1) India’s aspiration to be a developed nation by 2047 hinges on significant capital investment. In light of this, discuss the potential of capital investment in achieving this vision. What are the challenges India faces in this regard? (15 marks, 250 words)

ANSWER

Capital investment drives economic growth by enhancing infrastructure, industrial capacity, and technological advancement. It facilitates job creation, boosts productivity, and increases competitiveness, crucial for sustained economic development. As India sets its sights on achieving developed nation status by 2047, strategic capital investment emerges as a cornerstone of this ambitious vision.

POTENTIAL OF CAPITAL INVESTMENT:

1. Infrastructure Development: Investment in transport, energy, and digital infrastructure can enhance connectivity, reduce costs, and improve efficiency. For instance, the National Infrastructure Pipeline (NIP) envisions a jumpstart for pending greenfield and brownfield projects above 100 crores.
2. Industrial Growth: Capital infusion in manufacturing and services sectors can drive innovation, improve quality, and expand market reach. The Production Linked Incentive (PLI) scheme, with an outlay of INR 1.97 lakh crore, aims to boost manufacturing and attract investments in key sectors.
3. Human Capital: Investment in education and healthcare can yield a more skilled and healthier workforce, essential for a productive economy. The National Education Policy (NEP) 2020 2020 aims to increase the Gross Enrolment Ratio in higher education including vocational education from 26.3% (2018) to 50% by 2035, fuelling research and development in an economy, contributing to a productive economy.
4. Technology and Innovation: Funding in R&D and technology can lead to breakthroughs that propel industries forward, ensuring long-term growth. The Budget 2023-24 allocated INR 50,000 crore for the National Research Foundation (NRF) to strengthen research and innovation.
5. Digital Transformation: Investments in digital infrastructure and cybersecurity are essential for enabling e-governance, digital payments, and online education, contributing to a digitally empowered society.
6. Sustainable Development: Capital for renewable energy projects and sustainable practices can mitigate environmental impact while promoting economic growth.
7. Tourism Infrastructure: Investments in tourism infrastructure like hotels, transportation, and tourist facilities can boost tourism revenue and employment opportunities. Parvat Pariyojana aims to develop more than 250 projects with Ropeway systems to promote transportation in hilly states.

CHALLENGES:

1. Funding: Mobilizing adequate capital, both domestic and foreign, remains a challenge due to fiscal constraints and global economic volatility. India’s fiscal deficit stood at 5.6% of GDP in FY 2023-24, necessitating prudent fiscal management and immediate capital accumulation.
2. Regulatory Hurdles: Complex regulatory frameworks and bureaucratic red tape can deter investment and delay project execution. The Ease of Doing Business rankings highlight the need for further reforms despite improvements.
3. Socio-Political Issues: Political instability, policy inconsistency, and social unrest can undermine investor confidence and disrupt economic planning.
4. Skill Development: Bridging the skill gap through vocational training and educational reforms is essential to meet the workforce demands of new investments. Pradhan Mantri Kaushal Vikas Yojana 4.0 aims to impart skill development in minimal capital intensive industries like coding, AI, robotics, mechatronics, IOT, 3D printing, drones, and soft skills.
5. Regional Disparities: Addressing regional disparities in infrastructure development and access to capital is crucial for inclusive economic growth.
6. Global Economic Uncertainties: Adapting to global economic fluctuations and trade policies is a humongous hindrance when awaiting capital investment from abroad.

WAY FORWARD:

1. Enhance Policy Stability: Ensure consistent and transparent policies that would minimize regulatory uncertainties, and provide long-term clarity for investors by improving India’s ranking in global ease of doing business indices.
2. Addressing Logistical bottlenecks: Logistics costs in the Indian supply chain amount to 14 percent of GDP, compared to 8-10 percent of GDP in the US and Europe, and 9 percent in China. This disincentivizes capital inflow into the country as there are additional inputs required for transportation and logistics in India
3. Encourage Sustainable Investments: Incentivize investments in sustainable development, including renewable energy, green technologies, and environmentally friendly practices to balance economic growth with environmental conservation. This can benefit the investors by cutting down the environmental conservation costs and by enabling a circular economy.
4. Boost Manufacturing Competitiveness: Expand initiatives like the Production Linked Incentive (PLI) scheme to attract investments in high-value manufacturing sectors, fostering innovation, research and development, and global competitiveness.
5. Invest in Human Capital: With just over 2.9 percent of GDP being spent in the social sector, there is a need to prioritize investments in education and healthcare to develop a skilled workforce and improve productivity.
6. Promote Digital Economy: Accelerate digital transformation across sectors by investing in digital infrastructure, cybersecurity, and promoting digital literacy to attract conventional investors into the digital financial market.

As India charts its course towards achieving developed nation status by 2047, capital investment emerges not just as a means to an end but as a cornerstone of sustainable development. Through prudent allocation of resources, strategic partnerships, and forward-looking policies, India can pave the way for a prosperous future for all its citizens.

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