• UGI USER
  • Mar 04, 2024
  • 20 Likes
  • 1 Comments

ON THE UPSIDE

(REVIVAL OF PRIVATE INVESTMENT)

Syllabus:

GS 3: 

  • Investment Models.
  • Indian Economy and issues relating to Growth and Development.

Why in the News?

  • India’s economic trajectory continues to outperform expectations, registering a robust 7.6% GDP growth in the National Statistical Office’s second advance estimate, surpassing earlier projections. 
  • This resilience, coupled with a government focus on fiscal consolidation, is pivotal for sustaining high growth rates.
Source: The Print

GDP Growth Dynamics:

  • Surprising Upside:
  • The revised GDP growth of 7.6% for the fiscal year signifies a positive economic momentum, driven by additional data and rising net taxes.
  • Gross value added, excluding net tax impact, grew slightly lower at 6.9%.
  • Year-End Projection:
  • With the first three quarters averaging an 8.2% growth, the implied fourth-quarter growth is 5.9%.
  • Despite being below pre-pandemic levels, India’s economy is on a trajectory towards 7% growth.
Understanding Advance Estimates

Advance estimates of GDP are pivotal for economic planning and policy formulation. They provide early insights into the anticipated performance of key sectors, aiding decision-making processes.

Formation Process:

·    Data Evaluation: Central Statistics Office (CSO) formulates advance estimates by analyzing data from previous years and conducting surveys across various ministries.

·    Sector-Specific Estimates: Advance estimates cover various sectors, including agriculture and horticulture, projecting production for the upcoming fiscal year.

·    Timeline: These estimates are released months before the end of the financial year, providing timely insights for planning and policy formulation.

Types of Advance Estimates:

1.   1st Advance Estimates: 

Typically released in early January, these estimates set the initial forecast for GDP growth in the upcoming fiscal year.

2.   2nd Advance Estimates:

Published in the last week of February, these estimates follow the annual budget announcement and provide updated GDP growth projections.

3.   3rd Advance Estimates: 

Specifically focusing on agriculture and horticulture, these estimates offer sector-specific insights based on data from states and surveys.

4.   4th Advance Estimates: 

The final quarterly estimates before the end of the financial year, these projections offer a comprehensive overview of agriculture production.

Significance of Advance Estimates:

·    Budget Allocation: Advance estimates guide the finance ministry in allocating budgetary resources effectively.

·    Economic Planning: They offer a broad overview of the economy’s expected performance, aiding in policy formulation and decision-making processes.

Factors Influencing Growth:

  • Strengthened bank and corporate balance sheets contribute to improved growth performance.
  • The government’s infrastructure focus enhances growth potential.
  • The Reserve Bank of India (RBI), projecting a 7% GDP growth for the next year, faces limitations due to high-interest rates and reduced fiscal impulse, potentially normalizing demand and net tax impact.

Private Consumption and Savings Analysis:

  • Consumption Trends: 
  • Private consumption growth at 3% lags behind overall GDP growth.
  • Rural consumption, affected by high food inflation, particularly suffers, impacting discretionary spending.
  • Shifting Consumption Patterns:
  • Data reveals a shift in household consumption towards non-food items, reflecting rising per capita income.
  • Adjusting consumer price index weights becomes crucial, considering these changing consumption patterns.
  • Savings Overview:
  • Household savings, comprising 61% of total savings, have seen a decline in their GDP share to 18.4%.
  • Net financial savings witness a dip, while physical savings rise, reflecting increased borrowings for acquiring assets like houses.

Investment Scenario:

  • Corporate Investments: 
  • Comprehensive data on investments reveals public and household investments as leading contributors in fiscal 2022-23.
  • Private corporate investment remains stagnant, highlighting the need for a definitive revival.
  • Current Fiscal Dynamics:
  • The ongoing fiscal year sees signs of corporate investment picking up, driven by the Production-Linked Incentive (PLI) scheme, especially in pharmaceuticals and electronics.
  • The shift towards core/capital-intensive segments is anticipated.

Government Initiatives to Attract Investments

Empowered Group of Secretaries (EGoS) and Project Development Cells (PDCs):

  • Establishment: EGoS and PDCs set up by the Union Cabinet to expedite investments in collaboration with state governments.
  • Objective: To enhance India’s pipeline of investable projects and attract more FDI and domestic investments.

National Monetization Pipeline (NMP):

  • Launch: Introduced in 2021 to showcase available investment opportunities in infrastructure.
  • Value: Over four years, the NMP’s indicative value for the Central Government’s core assets is estimated at Rs. 6 lakh crore.

Business Reforms Action Plan:

  • DPIIT’s Business Reforms Action Plan ranks states/UTs based on their implementation of reform parameters.
  • Reform Areas: The Business Reforms Action Plan by DPIIT streamlines rules, focuses on key areas, and ranks states and UTs based on designated reform parameters.

Investor-Friendly Strategy:

  • Accessible FDI: Majority of sectors allow 100% FDI under the automatic route.
  • Policy Revision: FDI policy is regularly updated after extensive consultations with stakeholders to maintain India’s attractiveness for investors.

Four Labour Codes:

  • Streamlining: Government has consolidated 29 Central Labour Laws into four codes to simplify conducting business.
  • Codes: Includes the Code on Wages, Industrial Relations Code, Code on Social Security, and Code on Occupational Safety, Health, and Working Conditions.

Concessional Tax Rate:

  • Extension: Concessional tax rate of 15% extended to new domestic companies setting up manufacturing units until March 31, 2024.

India Industrial Land Bank (IILB):

  • Introduction: GIS-based portal providing comprehensive industrial infrastructure-related information.
  • Features: Includes connectivity, infrastructure details, terrain information, vacant plot details, line of activity, and contact information.

Phased Manufacturing Programme (PMP):

  • Promotion: Launched to promote domestic manufacturing of electric vehicles and related components.
  • Objective: Encourage indigenous production of assemblies, sub-assemblies, parts, and inputs.

National Single Window System (NSWS):

  • Launch: Introduced to streamline approvals and clearances for investors through a single window.
  • Benefits: Enhances transparency, accountability, and responsiveness in the ecosystem.

PLI schemes

  • Impact: Aimed at generating additional production worth Rs. 30 lakh crore and creating employment opportunities for 60 lakh people over the next five years.

Way Forward:

  • Corporate Sector Preparedness: The private corporate sector, poised for investments, could benefit from reduced policy uncertainty and compliance costs, fostering a conducive environment for economic growth.
  • Revival of Private Investments: A broad-based revival of private investments becomes crucial for sustained high growth rates, especially as the government moderates its investments, emphasizing fiscal consolidation.

Conclusion:

India’s economic landscape exhibits resilience and growth potential, driven by strengthened fundamentals. A strategic focus on private investments, coupled with addressing policy uncertainties, is imperative for navigating the path to sustained economic prosperity.

 

Source:

https://indianexpress.com/article/opinion/columns/dk-joshi-writes-indias-growth-surprise-9191094/#:~:text=A%20broad%2Dbased%20revival%20of,is%20now%20primed%20for%20investments.

Mains Practice Question:

Analyse the challenges and opportunities associated with private sector revival and its implications for India’s economic trajectory.