The state of the economy, not surprisingly, is the last thing on the mind of the government right now, but given how rapidly GDP growth is slowing, and the continued collapse in private sector investment, reviving this has to be the next government’s—whether it is the Narendra Modi one or another one—top priority. While even CSO data shows a consistent decline in investment levels, from 34.3% of GDP in FY12 to 26.8% in FY18, CMIE data on new investment proposals in FY19 indicates that, at Rs 9.5 lakh crore, this is the lowest in the last 14 years; between FY07 and FY11, CMIE says, this averaged around Rs 25 lakh crore a year. And within this, the share of the private sector has collapsed. In the 2006-2011 boom, the average share of the private sector in total investments was around 62%; this was down to around 47% in 2014-16.
While the government has to find ways to revive investment, getting back to earlier levels is going to be very tough. For one, a large part of the investment boom was driven by demand from the global boom and, within India, by the rush to complete projects via public private partnerships (PPPs). While the global boom has been replaced by gloom, the PPP model came unstuck several years ago and, to the extent PPPs are limping back in the road sector, these are very different since the bulk of the risk is now being taken on by the government. More important, as the pileup of NPAs shows, the investment boom was unsustainable, and probably fuelled by the fact that bank loans were easily available and, at that time, most investors knew that defaults weren’t going to be taken as seriously as they are now.
Even so, there are obvious areas that the government needs to work upon. This newspaper has documented how, even before RJio’s low-price assault, the telecom sector was reeling under the burden of high government levies—the levies made sense when spectrum was given free, but made no sense when spectrum was bought at market prices. In the oil and gas sector, the government’s policy has been one of big flip-flops and, in the case of mining where there is a lot of investor interest, the policy hasn’t been welcoming; indeed, in the coal sector, despite announcing commercial mining of coal, this has still not been acted upon for several years. In the power sector, with the government unable to ensure commercial prices are paid for power, huge state electricity board (SEB) dues have crippled power plants; and the precarious finances of these SEBs have ensured they are not signing contracts with power producers. Both power and telecom are the next sources of big NPAs for the banking sector. In the sugar sector, similarly, bad government policy has crippled fresh investment. And, despite the sharp increase in FDI in areas like e-tail, the fact is that, as a proportion of GDP, overall FDI is down from 1.9% in FY16 to 1.2% in the first three quarters of FY19; that is not surprising, given the U-turn in the e-tail policy or the fact that nothing has happened to reverse the UPA’s retrospective tax, etc. The new government, though, has to bring in the changes in policy very soon, since leaving it to later is the surest way of ensuring that very little gets done.