Why are pvt investment levels not robust?

Preconditions have been met to a large extent by the govt with affirmative action on taxation, but building momentum in private investment will take time

- MADAN SABNAVIS

THE DECIBELLEVELS calling for the private sector to invest more have gone up ever since the goods and services tax (GST) rates were rationalised.

The argument is that when the government has done everything within its powers to increase consumption and the Reserve Bank of India (RBI) has cut rates by 100 basis points, it is time for the private sector to deliver. It is expected that the private sectorwillrespond by investing more,which, by itself, will help generate more jobs and thereby initiate a new virtuous cycle of spending. While this is a logical expectation, the real world could be different.

Investmentis surely happening in the country—the gross fixed capital formation (GFCF) rate isat around 30%.But the proviso here is that it is not broad-based but concentrated in industries that are morealigned with infrastructure—steel, metals, machinery, chemicals, etc. It is also limited toa handful of companies in the consumer goods space. It does look like where there is increasing capex, the government spendsat the front end,but there is also a backward linkage to the industries concerned. In the best of times, the GFCF rate was 34-35%, andat the same time growth in GDP also averaged above 8%.Why, then, is investment not forthcoming?