Crisil Research has said private sector will have to script the economic turnaround by reviving investments and raising its contribution to overall growth.
This is because the private sector accounts for three-fourths of GDP, it said.
The Government can enable this by pushing through the next level of economic reforms and removing policy bottlenecks. Unlike during the 2008 global financial crisis, the public sector was not in a position to provide an impetus to growth due to the Government’s fiscal constraints, it said.
In the two decades since 1990, public sector GDP growth remained stagnant at six per cent, whereas private sector GDP growth went up to 7.7 per cent in 2000 from 5.7 per cent in the previous decade.
Private sector’s performance during the high growth phase of the economy from 2004-05 to 2007-08 logged 9.7 per cent GDP growth per year. Private corporate investments too surged to 17.3 per cent of GDP from 10.3 per cent during this period.
Pvt sector investments
Crisil said investments by private corporate sector slumped to 11.3 per cent of GDP in the crisis year 2008-09 from 17.3 per cent in the preceding year.
If India came through largely unscathed from the effects of the financial crisis, it was mainly due to the impetus from the public sector.
“The public sector cushioned India’s growth during the global financial crisis. During 2008-09 to 2009-10, private sector GDP growth had slipped sharply to six per cent from its pre-crisis levels of 9.7 per cent per year. Without a robust 12.3 per cent growth in public sector GDP on the back of increased government spending, India’s overall GDP growth would have averaged 6.2 per cent and not 7.6 per cent during these two years,” said Mr Dharmakirti Joshi, Chief Economist, Crisil.
Ms Roopa Kudva, Managing Director, Crisil, said: “The weak fiscal position of the Government constrains it from raising public sector GDP through increased spending. This is evident from the decline in public sector GDP growth to 6.5 per cent in 2010-11 from 14.5 per cent in the previous year. Consequently, the sustainable upside to growth will be largely shaped by the revival of private sector sentiment and investments.”