Sluggish investment may derail India growth story
The Centre must activate stalled infrastructure projects and clean up the banking sector to stay on course
The NDA government launched the ‘Make in India’ programme in 2014 to boost investments in the manufacturing sector. Subsequently, it took further steps — infrastructure development, FDI reforms, initiatives for quick approvals and clearances, bringing insolvency and bankruptcy code and the Goods and Services Tax — to push private investment, particularly in manufacturing. Unfortunately, private investment remains sluggish and could even derail India’s growth story. The investment ratio slowed down to around 30% after the global financial crisis (GFC) from 38% in 2007. Though public sector investment improved, private sector investment in manufacturing declined from 19.2% in 2011–2012 to 16.8% in 2014–15.
Investments in the corporate sector also witnessed a fall post-GFC from 16% in 2008 to around 10% in 2016, due to debt burdens, slowdown in private credit and twin balance sheets problems in the banking and corporate sectors. Stalled projects after GFC, almost 6 to 7% of GDP even now, weakened the balance sheets of corporations and public sector banks and, in turn, limited private investment and banks’ capability to lend.
Stalled projects, both in terms of value and number, is a cause of concern. Unfortunately manufacturing, which is essential for job creation, has maximum number of stalled projects. Recent data shows, the new investment realisation rate in transport infrastructure sector is falling since 2008 mostly due to issues like land acquisition, environmental clearances and other market conditions. It’s time to review all stalled projects and effectively use bankruptcy laws, asset restructuring, etc. to clean up bad assets and provide restructuring option to stakeholders. The reasons for stalled projects are mostly related to unfavourable market conditions, and delay in clearances and debt overhang. Falling exports also affected investment. Both Special Economic Zones and Exports Oriented Units have failed to deliver in terms of exports, investment and employment generation.
The government must revise these specific schemes, designed to augment production for exports, to suit the changing global environment and ensure proper functioning. Apart from infrastructure development, the government must work on trade facilitation. There is an urgent need to activate stalled projects and clean up balance sheets of corporate firms and the banking sector to revive the investment cycle. It is important to revive overall investment for balanced growth.