India’s growth recovery has so far been led by government investment, but fiscal restraints could prove challenging in the future to fuel investment, global forecasting firm Oxford Economics said Thursday. Structural change such as digitization and decarbonization offer enormous investment opportunities.

“A rapid recovery in investment has underpinned India’s growth recovery and raised hopes for a more sustainable turnaround in the investment cycle,” said Oxford Economics. “Although we have revised our investment outlook upwards based on the strength of the investment recovery, we continue to see significant scars from the Covid crisis,” she added.

Oxford Economics said government capital spending has led the recovery so far, but fiscal constraints are limiting its ability to continue investing. “As a result, we see the investment rate peaking in 2022 and total investment even in 2025 remaining 8 percent below the pre-pandemic baseline,” it said.

In the end, a global forecasting firm found that India’s falling savings rate is a barrier to investment. “We assume that without structural reforms to increase the savings rate, the investment rate will level off permanently in the long term,” she stated. Oxford Economics pointed out that the decline in the share of investment in GDP has been a cause for concern for nearly a decade, pushing India’s potential growth from 7.2 percent in 2004-2011 to 6.6 percent in 2012-2019.

A record increase in tax revenues this year was not aimed at major infrastructure spending, but the central government was on course to surpass the substantial budget consolidation already planned for FY22. “Against this background, we are skeptical that the forecast expenditures within the framework of the National Infrastructure Pipeline (NIP) will be fully realized,” it said.