Pick-up in private investments vital for 8% growth: experts

The economy may have grown at 7.9 per cent in the fourth quarter of 2015-16 but a pick-up in private investment and good monsoon will be essential for the Finance Ministry’s expectation of 8 per cent growth to materialise.

“The reform and policy initiatives of the government are beginning to see results. With the projection of a good monsoon, we will be able to reach 8 per cent growth in 2016-17,” said Economic Affairs Secretary Shaktikanta Das on Wednesday, adding that macro-economic indicators are robust.

The Central Statistics Office on Tuesday pegged growth in gross domestic product (GDP) at 7.6 per cent in 2015-16, while the Economic Survey had projected economic growth between 7 per cent and 7.75 per cent this fiscal. But economists contend that growth will be on the upper side of the range.

“Achieving 8 per cent rate of growth will depend on a pick-up in private corporate investment and a strong growth in agriculture,” said C Rangarajan, Chairman, Madras School of Economics, and ex-Chairman of former Prime Minister’s Economic Advisory Council.

Pointing out that a growth rate of 7.6 per cent is “very respectable” in the current global uncertainty, he said the economy is likely to expand at about 7.8 per cent in the current fiscal.

“The steady decline in the investment rate is a matter of concern,” he told BusinessLine .

In 2015-16, gross fixed capital formation grew 3.9 per cent, against 4.9 per cent in 2014-15. For the fourth quarter, it dipped by 1.9 per cent, which was the lowest since the fourth quarter of 2013-14. Private final consumption expenditure grew at 7.4 per cent in 2015-16, compared with 6.2 per cent last year.

Das expressed hope that reforms in ‘ease of doing business’ and liberalisation of foreign direct investment regime, increased private consumption and rural demand will help pick up private investments, adding that there are various reasons, including declining input prices, for the fall in the gross fixed capital formation.

But Pronab Sen, former Chairman, National Statistical Commission and Country Director, International Growth Centre’s India programme, said: “Public investments are rising but private corporate investments are still declining. This is an issue and needs to be monitored, else growth is reliant on the growth in consumption,” he said.

“The overall pattern of growth in 2016-17 is not going to be very different from what has been witnessed in 2015-16,” said India Ratings, adding that corporate sector investment will remain down for the foreseeable future due to excess capacity and stretched balance sheets.

Meanwhile, international rating agencies believe that a return to 8 per cent growth may be possible in 2017-18, provided the government moves ahead with structural reforms, including the implementation of the Goods and Services Tax.

Both Fitch Ratings and Standard and Poor’s Global Ratings have forecast a growth of 7.9 per cent this fiscal and 8 per cent in 2017-18.