By R Gopalan & MC Singhi

India witnessed accelerated growth of GDP and capital formation during 1994-2008, with annual GDP growth averaging 6.6% and that of capital formation averaging 11.6%. But since 2011-12, GDP and capital formation growth have moderated to 6.1% and 5.0% (2011-2024). Further, the potential growth has moved around the current levels, primarily because of near stagnation in the investment/GDP ratio.

We also see a U-shaped long-term capital output ratio (COR) varying from an average of 4.1 during 1950-1991 to 3.9 during 1994-2008 and 5.9 during 2011-2024. We believe in the last three years, higher GDP growth at constant prices is because of a low deflator. The use of a double deflator could have resulted in a downward GDP growth and higher incremental capital output

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