Highlight the reasons behind declining private investment in India in past few years. Suggest some steps to revive it.

Private investment in India has declined to about 29 % which is a cause of worry. Decrease in private investments has direct effect on GDP.

Reasons behind private investment decline:

  • Policy uncertainty fuelled by the reforms whose implementation is questioned by the critiques.
  • Reduced disposable income due to rise in wages being slower than rise in inflation.
  • Problem of reinforcing of poverty due to unemployment and disruptions.
  • Stagnancy and credit defaults by MSMEs leading to negligible growth and loss of wages.
  • Global demand reducing due to rise in protectionism leading to concerns in export-oriented industries and people.
  • Frequent policy changes leading to reduced scope for investment.
  • Reduced confidence in investors.

Steps to be taken to revive private investments:

  • Facilitating credit flow.
  • Smoothening of regulatory framework to streamline Investments.
  • Confidence building measures through conferences with investors, corporates.
  • Policy with long-term predictability and support to industry to transition and align with the new policy.
  • Focus on labour intensive industry which leads to money in people’s hand and some of which enter through investment.
  • Incentivizing investment through tapping the savings of middle class retail investors.
  • Financial inclusion of people and transparency to facilitate Investments.
  • Awareness about risks and increasing information dissemination.
  • Reducing crowding out of capital markets and autonomy to banks.

Indian economy has always seen a gap in savings and investments, which needs to be leveraged to revive private investments. It is critical to India being a consumption-led economy and government having fiscal constraints.

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