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.