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.

Topics: GS-III: Indian Economy Issues Relating to Planning • GS-III: Mobilization of Resources • GS-III: Economic Growth Development