Private capital crucial for sustainable development: FM Sitharaman
In an era of volatile FDI flows and mounting global uncertainty, she said private capital has emerged as an increasingly important source of development finance.
Finance Minister Nirmala Sitharaman on Monday underlined the crucial role of private capital in driving sustainable development, saying it is both an urgent necessity and a significant opportunity.
Addressing the Leadership Summit of the International Business Forum at Sevilla, Spain, she said that private investment is a catalytic force, unlocking capital, boosting productivity, fostering innovation, and introducing technological rigour, all essential for inclusive, sustainable economic growth, according to an official statement.
In an era of volatile FDI flows and mounting global uncertainty, she said private capital has emerged as an increasingly important source of development finance.
"In recent years, we have witnessed encouraging growth in private investment, supported by the rise of innovative financial instruments alongside traditional sources. However, private capital mobilization remains significantly below what is required, with low- and middle-income countries receiving a disproportionately small share," she said.
This underscores the urgent need for targeted efforts to overcome investment barriers and better align financial flows with development priorities, she said.
"Mobilising private capital is not merely a financing strategy; it is a development imperative. With coordinated action, thoughtful regulation, and shared ambition as reflected in Compromiso de Sevilla, we can ensure that private investment becomes a force for inclusive, sustainable, and resilient growth," she said.
Talking about key challenges for emerging economies, she said these include the high cost of capital, a shortage of bankable projects, regulatory and institutional constraints, limited local capacity, and high perceptions of risk, both country-specific and currency-related.
Effective mobilisation of private capital demands a multi-pronged strategy, combining robust domestic reform with strengthened international cooperation, she said.
Pointing out seven strategic areas where transformation is both necessary and achievable, she said, strong domestic financial markets, addressing perceived risks through institutional reforms, creating scale in investment opportunities and scaling up of blended finance.
Besides, she said, Multilateral Development Banks (MDBs) and Development Finance Institutions (DFIs) must assume a stronger enabling role for mobilization of private capital.
Stressing that international credit rating methodologies must evolve to better reflect the structural strengths and long-term resilience of EMDEs, she said, current sovereign ratings often understate key fundamentals.
Reforming rating methodologies would not only enhance fairness but also reduce financing costs and unlock far greater volumes of private investment, she added.
Finally, she said, unlocking capital at the grassroots level requires support for MSMEs.
"These engines of inclusive growth need access to credit, technology, and capacity-building, along with simplified compliance frameworks. India's initiatives, ranging from credit guarantees and stress-period financing to E-Commerce Export Hubs, have improved MSME creditworthiness and global value chain integration," she said.
Sitharaman on Monday embarked on a three-nation official visit. She is leading an Indian delegation to Spain, Portugal and Brazil to attend a host of events, including the BRICS Finance Ministers and Central Bank Governors Meeting (FMCBG).