The architecture is not the force (Private investment falling)

Excellent study material for all civil services aspirants - begin learning - Kar ke dikhayenge!

The architecture is not the force (Private investment falling)

---

Read more on - Polity | Economy | Schemes | S&T | Environment

---

• GDP and investment: While data on GDP growth can be debated and questioned, there are other indicators that can be independently assessed, like private investment (in productive capacity, not in shares or buying durable goods etc.).
• Investments: Governments can raise capital outlay, without worrying about "profitability". But private investors (both Corporate sector and the Unincorporated households) look at profit first. Private investors look at the economy, assess it, and calculate possible profits. Current trends help work through the future uncertainty.
• How to motivate private investors? A government must inspire confidence today, in private investors' minds. Since 2014, private investment has been lower than in earlier years. That, in a business-friendly govt., is strange.
• The two private sectors: Corporate sector investment kept falling till recently, when it showed a mild uptick. But household investment is sharply down. Overall impact? Down.
• Why down? Businesses and investors are unsure of today, and unclear of tomorrow. They just don't believe the government talk about pro-business policies, etc. CONCEPT
• Where did they go wrong? The government has wrongly assumed the architecture to be the force itself. "Architecture" of the economy is its framework, and "force“  is the rise and fall of demand and supply.
• Modi govt.'s architectural elements: There are four - (i) presence of FDI, (ii) digital payments, (iii) better indirect tax regime, and (iv) less government. Partially they have succeeded in doing this.

• The four elements:

1. FIRST - Problem with FDI : It still is not a large part of total capital formation in India, and goes to sectors that don't have a high multiplier effect on output.
2. SECOND - DeMo was brought in to speed up digital payments, but first by claiming it to be a strike against black money.
3. THIRD - GST was brought in without proper preparations.
4. FOURTH - Less government has actually meant reducing public expenditure in the economy.

• Two extensions into the macro economy: First, the entire monetary policy was reduced to combating inflation alone. Growth was forgotten. Fiscal policy has focussed on deficit reduction alone, and not a combination of revenue deficit and public investment.
• More tax from more formalisation: It is not happening, as the fiscal deficit tension 2018-19 clearly shows. 2016-17 GDP growth was hit by DeMo.
• Aggregate demand hit since 2014: Rising interest rates (inflation control) + fiscal consolidation moves have crimped aggregate demand.
• Finally: The private sector is not happy, and its investments are falling. The govt. has not balanced that by raising its own investments. "Minimum government" has ended up harming everyone.
• Summary - The continuous drop in private investment in Indian economy is indicative of the poor confidence it has had in the profit potential of near future.

Read more on - Polity | Economy | Schemes | S&T | Environment

Join UPSC Self Prep course | Online Course (PT Gurukul)  | Covid Special Course | Join PT courses

* Content sourced from free internet sources (publications, PIB site, international sites, etc.). Take your own subscriptions. Copyrights acknowledged.