NEW DELHI: Amid the growing debate over whether private investment is picking up or not, member, Economic Advisory Council of Prime Minister (EAC-PM) Arvind Virmani has said that to know the real picture of private investment one has to see the numbers on the basis of constant prices.
In an interaction with this paper, he said that the private investment in nominal terms or current prices seems to be slowing down majorly because of moderate rise in the prices of plant and machinery.
“Price of capital/investment goods is rising slower than that of the GDP. When the ratio of the current prices of investment (investment in equipment and machinery) to GDP is declining much less than at constant prices, it means they are spending the same amount but buying more,” Virmani said.
He stated that the inflation in the capital goods was less than everywhere else, that’s why the real prices went down. “With the same amount of money, you could buy more capital goods. In money terms it seemed it was going down but in real terms it wasn’t going down,” Virmani said.
He added that there was a small fall in private investment in real terms also due to significant fall in household savings and investments in physical goods and real estate. “Almost 95% of the decline in real investment to GDP ratio was due to one factor -- households were investing less in housing structure,” Virmani added.
However, he further added that this lag is now recovering. According to him, it is important to understand the past trend to know the present. “Unless you understand the past, you can’t understand the present. It wasn’t due to a slowdown in private investment. There was a small decline in real terms that was due to decline in household investment in housing,” he said.
He fustressed that the housing investment was earlier going down, but now it is coming up.
Arvind Virmani is a member of NITI Aayog