Physical Capital Remains Scarce
by Samarth Misra
India’s rate of investment in physical capital has stagnated.
Robert Solow (RIP) and his great insight must not be forgotten. In countries where labor is abundant and capital is scarce, a rise in investment rate boosts overall growth. The playbook was written for us by South Korea in the 1960s, post-WW2 Germany and Japan, and several other countries that have made fortunes playing the game of catch-up growth.
With India’s GCF currently at about 30%, it remains above key Altasia countries like Indonesia, Vietnam, Thailand, Malaysia, and Cambodia. A high GCF, among other things, signals to foreign investors that a country is actively developing its economic base, which can attract more foreign direct investment and potentially increase access to international markets. Global decoupling from China will be slow and it is imperative for India to take a share of that business. An uptick in investment rate over the next 3-5 years will act as a beacon for businesses searching for new havens. It might even help offset India’s suboptimal rankings on the Ease of Doing Business Index (which do seem to be improving gradually). India cannot compete on low-cost labor alone because abundant labor is abundant across Altasia.
