Investments shy over growth worries- The New Indian Express

If it is not one thing, it is another that is holding back private investment. First came the double bottom line problem, followed by the slowdown, the Covid-19 pandemic, and now, global uncertainty due to the Russian war, supply chain disruptions, recession fears, and persistent inflation. As a result, India’s investment-to-GDP ratio slipped from a high of 38% over the past decade to around 10% today. The quarter ending June 2022 saw investment proposals worth Rs 3.57 lakh crore, which is encouraging, but this is almost half of the previous quarter, in which there were proposals worth Rs 5.91 lakh crore.

A visibly disappointed Nirmala Sitharaman, who has been waiting for the animal spirits to be unleashed since 2019, when she took over the Finance Ministry, did not hold back in asking why industries were not investing, despite corporate tax cuts and production-related incentives. , in addition to others.

She has a point. The balance sheets of companies and banks are clean. The ratio of corporate debt to GDP fell to a decade low and profitability has risen. Central government Capex spending is on track, while capacity utilization at over 74% is above pre-pandemic levels and inching towards the 2019 peak of 76%. Inarguably, foreign investors and industries see India as an opportune market, while companies relocating from China see India as their next stop. In fact, Bob Sternfels, the head of McKinsey, believes that this century belongs to India, not just the decade.

But local businesses aren’t entirely willing to take risks, perhaps insisting that it’s not government capital spending or low interest rates that drive private investment, but lasting growth and strong demand. Both are bypassing India as of now. India’s per capita income fell below the previous year and, as if the decline in purchasing power wasn’t enough, inflation is making it worse. And rising interest rates could hit household spending, further reducing demand and adding to investor uncertainty.

Finally, companies prefer smooth compliance and policy stability before embarking on their next investment cycle. Sitharaman may be right in comparing India Inc’s abilities to those of Hanuman, who is often reminded of his strengths. But it is also true that Hanuman was known to contain his supreme energy and use his power only when the situation required it. Even if investors respond to investment calls, their decisions must be guided solely by market dynamics to avoid the mistakes of the previous decade.

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