Investment Led Growth in India: Hindu Fact or Mythology?

India’s investment rate has increased fourfold since 1950 and has risen sharply this decade to 36% of GDP. But contradictory views have been expressed regarding the importance of this investment pattern for India’s economic growth. This paper evaluates the impact of the rise in India’s investment rate on its economic growth, using the neoclassical growth model. It finds that, although rises in the investment rate and capital accumulation have been strong, the increases in the investment rate have added no more than 1.2 percentage points, and perhaps as little as 0.7 percentage points, to India’s overall growth rate of GDP per worker of 2.7%. It also shows that the current investment boom will have a very small effect on future growth rates and that the benefits from further increases in the investment rate are also likely to be small.