The current episode of investment slowdown is ongoing, and one that is impacting growth, and therefore investment revival needs to be prioritised urgently to arrest more lasting impact on growth, according to the Economic Survey.
Signalling the likelihood of some steps to boost investment in the forthcoming Union Budget, the Survey said, “The policy conclusion is urgent prioritization of investment revival to arrest more lasting growth impacts, as the government has done with plans for resolution of bad debts and recapitalization of public sector banks.”
To help India regain 8-10% growth, the Survey suggested that the measures that need to be taken soon should include easing the costs of doing business further, and creating a clear, transparent, and stable tax and regulatory environment. The Survey also added that the government must create a conducive environment for small and medium industries to prosper and invest to help revive private investment. “The focus of investment-incentivizing policies has to be on the big and small alike. The ‘animal spirits’ need to be conjured back,” it said.
Savings slowdown
Besides, the Survey has raised concerns over the savings slowdown saying that too is an ongoing one. However, the document added that investment slowdowns are more detrimental to growth than savings slowdowns.
Referring to the simultaneous slump in saving and investment, the Survey asked, “Should policies that boost investment (substantial infrastructure push, reforms to facilitate the ease of doing business or the ‘Make in India’ program) be given greater priority over those that boost saving?”
It then opined that mobilizing saving through attempts to unearth black money and encouraging the conversion of gold into financial saving or even courting foreign saving are important but perhaps not as urgent as reviving investment. Besides, in any case, the share of financial saving is already rising in aggregate household saving — with a clear shift visible towards market instruments — a phenomenon helped by demonetization, it pointed out.
The ratio of gross fixed capital formation (investment) to GDP climbed from 26.5% in 2003, reached a peak of 35.6% in 2007, and then slid back to 26.4% in 2017, while the ratio of domestic saving to GDP rose from 29.2% in 2003 to a peak of 38.3% in 2007, before falling back to 29% in 2016. “Such sharp swings in investment and saving rates have never occurred in India’s history,” the Survey said.
