URGENT NEED FOR GOVT TO STIMULATE INVESTMENTS
NEW DELHI: Policymakers need to stimulate investments as a decline in investment is more detrimental to the economy than a fall in the savings rate, the Economic Survey 2017-18 tabled in Parliament on Monday said.
The Survey said that in countries where businesses are unable to make fresh investments and banks are constrained by loan defaults—known as the twin balance sheet problem—a recovery in private investment can be slow. This calls for according priority to stimulating investments.
The Survey said, quoting analysis of data from several economies, that investment slowdowns have an impact on growth while a decline in the savings rate does not necessarily have one. “Recoveries from investment slowdowns, especially those associated with balance sheet difficulties—as in India—tend to be slow... The policy conclusion is urgent prioritisation of investment revival to arrest more lasting growth impacts, as the government has done with plans for resolution of bad debt and recapitalisation of public sector banks.”
The Survey also said that India’s investment slowdown is not yet over although it has unfolded much more gradually than in other countries.
Besides, the share of financial saving is already rising in aggregate household saving—with a clear shift towards market instruments—a trend helped by note ban, the Survey said.
The Survey noted that the cumulative fall between 2007 and 2016 has been milder for investments than savings, but investments have fallen to a lower level. As a share of GDP, gross fixed capital formation, a proxy for investments, declined to 26.4% (in 2017), while savings as a share of GDP declined to 29%.