India Inc's low confidence reason for drop in investments: Analysts

Topics Budget 2020 | India Inc | Investment

Private final consumption expenditure, an indicator for demand, is estimated to see growth fall to 5.8 per cent in 2019-20, from 8 per cent in the previous year
Economists attributed the 15-year low investment growth to subdued confidence in India Inc about rate of returns in the future, even as Prime Minister Narendra Modi urged the captains of Indian industry to pump in money.

Former chief statistician Pronab Sen said the confidence among investors was still missing.

“Where investments are concerned, they are always based on forward looking point of view. You need a certain degree of confidence that there will be returns. That confidence is missing. In a situation where demand is collapsing day by day you cannot expect investors to pump in money,” said Sen.

Sen said Finance Minister Nirmala Sitharaman’s recent announcement of spending in the infrastructure sector will not help much immediately because of high gestation periods for these projects. “The government needs to spend on projects with quick turnaround period,” he said.

Last week, Sitharaman had announced Rs 102 trillion worth of infrastructure projects that will be implemented in the next five years as part of the government’s spending push to this sector.

Madan Sabnavis, chief economist at CARE Ratings, said the problem of low investments could be blamed on surplus capacity in the private sector, coupled with low demand in the economy.

“You have surplus capacity and low demand. There are no signs of fresh investment despite corporation tax rate reduction in September. The surplus went into dividend payments or repayment of debt,” he said. As an economic revival measure, Sitharaman had on September 20 announced a tax rate cut to 22 per cent from 25-30 per cent for existing companies that do no avail exemptions, and 15 per cent for new companies set up after September 30. She had also announced a reduction in the minimum alternate tax from 18.5 per cent to 15 per cent.

Private final consumption expenditure, an indicator for demand, is estimated to see growth fall to 5.8 per cent in 2019-20, from 8 per cent in the previous year.

“The growth slowdown, especially in private consumption, has taken the sting out of GDP growth because this alone constitutes the 57.4 per cent of total GDP. India Ratings (Ind-Ra) believes even Advance Estimate of five GDP growth is not sacrosanct,” said Sunil Sinha, principal economist at Ind-Ra. The assumption relating to private consumption looks somewhat unrealistic if festival demand is taken as an indicator, he added.

At an industry event on Monday, Modi had urged India Inc to invest. “At the beginning of the new year, today from this platform, I will again tell the Indian industry not to let disappointment linger with you. Go ahead with new energy. Whichever corner of the country you go to, for your expansion, the Indian government will walk with you,” he had said. He had also met top executives from Corporate India to discuss ways to boost economic growth and urging them to invest.

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