DESPITE tax cuts and incentives, private investment hasn’t really taken off in the country. Though the government has increased its capital expenditure by three times since FY20, private sector has been slow in investing. So what are the reasons behind this slow investment by the private sector? According to the World Bank, private gross capital formation was 22% of GDP in 2022. They used to be as high as 25-26% of GDP in FY14 and FY15.
Many factors –both domestic and global -- are responsible for this lackluster investment by corporates. First of all, China’s monopoly in the manufacturing sector can’t be denied. It has always been cheaper to import from China. So, in that scenario, the private sector never needed to put investment in the country.
In addition, investment is majorly driven by demand. Consumption was already low among the rural and middle class, and it got further exacerbated by Covid pandemic. Though there has been some recovery in demand now but that too among the rich and higher middle class. Inflationary pressure on account of Covid and geopolitical tensions between Russia and Ukraine also played their part in worsening the demand situation.
This story is from the March 19, 2023 edition of The Morning Standard.
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This story is from the March 19, 2023 edition of The Morning Standard.
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