SDG 9: Industry, Innovation and Infrastructure | SDG 8: Decent Work and Economic Growth
Institutions: Ministry of Finance | NITI Aayog
The European Central Bank (ECB) blog highlights the critical role of targeted European Union (EU) investment programmes, such as the European Structural and Investment (ESI) funds, in addressing the substantial funding gap for the EU’s green, digital, and defence transitions. With public resources insufficient, the modest EU budget (1% of total gross national income) must rely on its ability to mobilize private capital.
ESI funds, which include mandatory national co-financing, are central to this effort, promoting regional convergence and competitiveness through strategic investments in innovation and infrastructure. Recent ECB research demonstrates a powerful “crowding-in” effect: every euro of ESI funding generated €1.10 of private investment and €0.10 of business Research and Development (R&D) over a two-year period. Furthermore, firms that received ESI funding showed long-lasting performance improvements, including a steady 15% increase in capital stock and a 3% rise in productivity over four years. These findings underscore the strategic necessity of high-quality public investment in catalyzing high-quality, long-term private investment and boosting productivity.
The documented success of the ESI funds, particularly the use of mandatory co-financing and strong empirical evidence of leveraged private investment, offers a powerful model for Indian policymakers (MoF, NITI Aayog) seeking to maximize the impact of schemes like the National Infrastructure Pipeline (NIP) and the Production Linked Incentive (PLI) scheme on long-term productivity and private sector participation in national priority areas.
What is “Crowding In” in the context of public investment?→ Crowding in occurs when targeted public investment, such as in high-speed rail or digital networks, enhances productivity and confidence, thereby stimulating—or attracting—additional private investment that otherwise would not have occurred. Conversely, “crowding out” happens if large-scale public spending increases resource demand and borrowing costs, discouraging private sector initiative. The ECB study found a strong net crowding-in effect.
Relevant Question for Policy Stakeholders: What specific co-financing and monitoring mechanisms must India adopt to ensure its public investment programmes achieve the same quantified “crowding-in” of private capital demonstrated by the EU model?
Follow the full news here: Unlocking private investment and boosting productivity with EU programmes