Indian economy faces investment slump; proactive steps are need of the hour

Investments are a key driver for economic growth and are a source of job creation. It’s imperative that the government takes urgent measures to revive consumption, which will spur investments by default.
Image used for representational purposes only.
Image used for representational purposes only. (Photo| Pexels)

The Indian economy needs the next private investment cycle to take off right now, but the hour’s growing late. In a setback, latest data indicates that the value of new investment projects announced during the first quarter of the current fiscal year plunged 92% to Rs 59,900 crore. According to CMIE data, in value terms, June quarter reported the lowest level of project announcements by both private and the government since September 2009, when it began collecting data.

Not only is the investment sentiment low, but they are concentrated in just a few sectors. One can take comfort in the fact that the decline was partly due to general elections, which concluded only last month. That said, industries’ reluctance is undeniable and though private investment is expected to pick up pace in FY25, overall investment activity is likely to depend on public investments like in the past.

This is disappointing since corporate India got everything on a platter. Be it tax cuts, production-linked incentives, ease of doing business and so on. Yet, the long-awaited capex cycle remains elusive. The government too has been nudging industries to go out and spend now that balance sheets of both borrowers and banks are clean, profitability levels are improving, and capacity utilisation touched the pre-pandemic levels of about 76%.

For investors, India also remains one of the lucrative markets, but companies just don’t seem to be in the mood for risk taking, perhaps because private consumption is growing in single digits. In particular, rural demand hasn’t gathered the needed pace, while urban consumption, which was relatively doing better until now, has started showing signs of tiredness as was evident from the lacklustre monthly auto sales data.

In FY23, investments stood at 10.9% of GDP, lower than the 16.8% peak seen during FY08. The decline was largely from manufacturing, where the share of private capital formation in the GDP fell from 4.6% to 3.2% during FY12 and FY19. This was acknowledged by none other than Anand Mahindra, chairman of Mahindra & Mahindra, who urged the manufacturing industry to increase investments, as the share as a percentage of GDP fell to a ‘worrisome level.’ Investments are a key driver for economic growth and are a source of job creation. It’s imperative that the government takes urgent measures to revive consumption, which will spur investments by default.

Image used for representational purposes only.
India’s private investment puzzle

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The New Indian Express
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