NEW DELHI: Government capital expenditure has been the highlight of India’s investment story so far, with private funding lagging, but independent economists say this could change if the new administration strengthens the banking sector, boosts household savings and offers tax cuts.

The statistics office expects gross fixed capital formation (GFCF), an indicator of investment, to grow 10% in 2018-19 from 9.3% in FY18. Average investment growth was 9.2% in FY17-FY19, higher than 3.6% GFCF growth over FY14-FY16. The current expected investment recovery is dependent on government spending as incremental private corporate capex has yet to revive. Capital expenditure for 2019-20 is estimated to be Rs 3.36 lakh crore.

“Sustained and lasting effort to resolve the non-performing asset situation in the banking sector, further reforms in ease of doing business and revamping the ‘Make in India’ strategy at a sectoral level are some key areas to work on,” said Tushar Arora, senior economist at HDFC Bank.

“Resolving NPAs and non-banking financial companies’ liquidity should be a priority area for a robust banking sector. Tax cuts for households and corporates will go a long way in improving consumption,” said Madan Sabnavis, chief economist at CARE Ratings.

Higher capacity utilisation has not been able to make up for a loss in industrial output and capital goods production. Factory output, as measured by Index of Industrial Production, grew at a three-year low of 3.6% in 2018-19.

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India Ratings and Research said the inability to bring stuck capital back into the production process will have implications for investment recovery.

“Resolving structural issues is key to stimulate private investment. This can be done by reviving household savings and finding a solution for funds stuck in the real estate sector. This will boost consumption, savings and investment,” said Devendra Kumar Pant, chief economist at India Ratings.

As per Kotak Institutional Equities, the household savings rate declined to 17.2% in FY18 from 23.6% in FY12.

“Make in India needs a major revamp to include services and agriculture. We still score low in terms of dispute resolution and paying taxes in ease of doing business. Land and labour reforms haven’t got much attention,” said an economist of a domestic bank.

Upasna Bhardwaj, economist at Kotak Mahindra Bank, said: “Private investment is linked with government spending, which came to a halt recently due to election-led uncertainty. We expect it to continue in the near term.”





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