Next phase needs private investment, higher R&D spend: Sitharaman | Economy & Policy News

Private investment must drive the next phase of the economic cycle as India seeks to sustain growth and build resilience against a more uncertain global economic environment, Finance Minister Nirmala Sitharaman said on Saturday. She called for greater private capital expenditure as well as higher spending on research and development (R&D).

 

“Private investment must now lead the cycle, including in research and innovation,” Sitharaman said at the Kautilya Economic Conclave organised by the Ministry of Finance.

 

India’s R&D expenditure currently stands at 0.83 per cent of gross domestic product (GDP), compared with 2.7 per cent in Organisation for Economic Co-operation and Development (OECD) economies, while the private sector accounts for only 36 per cent of the country’s total R&D expenditure.

  

“Raising both the scale of investment and private sector participation is essential to strengthening our innovation capacity,” she said. 

In the interim Budget for 2024-25 (FY25), the government had announced a ₹1 trillion Research, Development and Innovation (RDI) fund to encourage the private sector to also spend on R&D.

 

The scheme aims to support a shift from “Made in India” to “Imagined and Made in India”, the minister said.

 

Sitharaman said the coming years would require India to strengthen the foundations of resilience built over the past decade while preparing for newer sources of global uncertainty.

 

“Uncertainty is now a standing condition of the global economy, and policy must be designed around it,” she said, adding that building resilience was not a one-time exercise.

 

The finance minister identified strategic resource security, continued global economic openness and skill development as other priorities for the coming years.

 

Strategic resource security would be central to macroeconomic policy, she said, as supply chains optimised solely for cost could carry hidden fragility. India has launched the National Critical Mineral Mission, Rare Earth Corridors and India Semiconductor Mission 2.0, while also focusing on the development of small modular reactors, she said.

 

At the same time, Sitharaman stressed that greater strategic resilience should not come at the expense of global economic openness.

 

“Global economic relationships must also remain open, predictable, and rules-based,” she said, calling for dialogue and negotiated agreements rather than allowing geopolitical differences to become barriers to trade and investment.

 

She said international trade policy should provide greater certainty to businesses, respect national development priorities and avoid unnecessary restrictions that fragment markets.

Growth remains resilience

Sitharaman said India has come through the shocks of the past four years with its economic fundamentals intact and strengthening. Real GDP grew 7.8 per cent in Q1 FY27, while gross non-performing assets of banks were at multi-decadal lows and foreign exchange reserves stood at around $766 billion, she said.

 

She said the global economy has been facing sharper versions of older vulnerabilities, including crude price spikes, tighter US monetary conditions and rising trade barriers, alongside conflicts and disruptions to the physical movement of oil and gas. But India’s economic activity remains resilient.

 

India’s resilience had been built through a combination of household-level measures, access to finance, banking reforms, infrastructure creation, economic reforms, price stability and fiscal prudence, Sitharaman said.

 

The government has budgeted ₹12.22 trillion in capital expenditure for FY27, while effective capital expenditure, including grants for the creation of capital assets, stands at ₹17.15 trillion, or 4.4 per cent of GDP, she highlighted.

 

The fiscal deficit is budgeted at 4.3 per cent of GDP in FY27. The International Monetary Fund (IMF) projects India’s general government debt to decline from 83.4 per cent of GDP in 2026 to 77.7 per cent in 2031, she added.

 

Sitharaman said the next test for India would be to convert the capacities built over the past decade into higher productivity, better employment and wider economic opportunity.