Why did the Union Finance Minister ask the industrial giants to invest in production? Is private sector funding the lowest? Isn't it time for government intervention to step up and increase infrastructure spending?
So far : Last month, Finance Minister Nirmala Sitharaman asked industry leaders what is holding them back from investing in manufacturing. He compared the industry to Lord Hanuman of the Ramayana, stating that the industry does not realize its strength and should move forward with confidence. He said, "Time to go to India … We can't miss the bus."
Why did you call them that?
Of course, the finance minister did not expect the investment to go as well as he would have liked. In an effort to stimulate private investment, the government reduced the tax rate for domestic companies from 30% to 22% in September 2019 if they stop using any other tax SOPs (standard operating procedures).
Niranjan Rajadhyaksha, CEO of Artha Global, says private sector investment in India has been weak for nearly a decade. "If we look at the drivers of economic growth right now, we will see that we are flashing amber. Export records will be threatened by a global slowdown and the government's ability to support domestic demand will also be limited by shrinking budget deficits. Due to the K-shaped recovery, private consumption is concentrated only in parts of the income pyramid.
What is the current scenario?
Let's see some indicators of the last few months; In general, the changes in the numbers match the previous year's data, but when we have been experiencing sudden, life-changing changes such as the pandemic for at least two years, it is advisable to analyze whether the numbers have changed quarterly. quarter or month … month month has changed. This gives us an idea of how well or badly we are recovering. In GDP data for the quarter ended June, 2011-2012 gross fixed prices (GFCFs) increased 9.6% to £ 12.77 billion, compared to £ 11.66 billion in the first quarter before the pandemic . This comes in an overall GDP growth of 2.8% to KRW 36.85 billion in the first quarter of 2020, compared to KRW 35.85 billion in the first quarter of 2020. From £ 5.68,104 in the first quarter of 2020. fiscal year 23 of fiscal 2020 from April to June compared to January and March of the previous quarter, we see that the sector shrank by 10.5%. While private final consumption expenditure, one of the main pillars of our economy, grew by 26% year-on-year in the June quarter, private spending in the April-June 2022 period of £ 22.08 billion was £ 54 billion. of pounds. £ 2.4 billion. % less than what was spent in the previous quarter. And the GFCF, taken as an indicator of private investment, fell by 6.8% compared to the previous quarter.
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Industrial production has shown growth in each of the first five months of this financial year since April, compared with the previous year; but, worryingly, the monthly numbers, as seen in the S&P Industrial Production (IIP) Index and the S&P Purchasing Managers (PMI) Index by Production, have increased. Earlier this month in The Hindu magazine, Pulapre Balakrishnan, a professor at Ashoka University in Sonipat, Haryana, said that public capital spending is ahead of private investment, but that public spending needs a constant trend for at least half a century or so. help generate excitement in the private sector. While the government's intention to actively spend on infrastructure in the fiscal year budget is encouraging, it says the cycle should have started years ago. Now that the government has announced its intentions, it says it must now focus on some priorities; First, you need to identify the right projects – infrastructure investments that will increase productivity. Second, it warns that inflation can undermine the best public spending programs and calls for an increase in agricultural production to help reduce food inflation.
And the order?
Private companies invest when they appreciate their profits, which come from demand. The Center for Monitoring Indian Economy (CMIE) Consumer Sentiment Index is still below pre-pandemic levels, but above what we saw 12-18 months ago. The RBI Monetary Policy Report of September 30 stated: "Data for the second quarter [end of September] shows that aggregate demand remains solid, supported by the continued recovery in private consumption and investment demand." It shows that seasonally adjusted capacity utilization rose to 74.3% in the first quarter, the highest level in the past three years. Manufacturing companies have seen steady growth in new orders, while infrastructure companies have shown optimism on the overall state of business, revenue and employment in the second quarter: 2022-2023.
In an article on the state of the economy in the RBI Monthly Bulletin published last week, the authors, led by Lieutenant Governor Michael Debabrata Patra, pointed out that high-impact sectors are likely to drive rejuvenation as pandemic-related restrictions are loosened. "The expenditure linked to the festival has already stimulated consumer demand, with positive repercussions from other components of domestic demand".
Artha Global's Dr Rajadhyaksha says we are a little behind in terms of capacity utilization as the investment cycle usually begins. Capacity utilization is much better than in the pandemic, when it dropped to 67-68%. He says the rule of thumb is that the capital investment cycle really begins when capacity utilization reaches 78-80%. We swim in this region, but not yet. "If I had to venture a hypothesis, the private investment cycle should reset in the coming months, barring some real event that will bring back the entire global economy."
In August, UBS Evidence Lab India conducted an online survey of 1,500 consumers. Nearly three-quarters of respondents in this survey indicated that their income level is stable or increasing (up from 54% in the August 21 survey). The results show a strong propensity to buy cars and two-wheeled vehicles, a divergent propensity for ownership and moderation in some consumer durables (including computers / laptops, refrigerators, air conditioners). (The survey mainly refers to the "upper income" or "upper middle income" sections of India's income pyramid by socioeconomic classification and is therefore not representative of the majority of the population, according to UBS.)% Of respondents who have stated that they intend to increase their savings by the end of the year.
And this could be the key to kick-starting the investment cycle in response to the finance minister's appeals.