Countries attach great significance to domestic investment. It is an important factor for growth and a primary driver of broad-based economic development. Domestic investment means both government and private investment.

Government investment is primarily in the area of physical infrastructure (which can provide jobs in the interim) — essential for all economic participants — and social infrastructure like education, sanitation, healthcare, etc. Almost by definition all these areas do not supplement the national production capacity for goods and services. Therefore sluggish or absent private investment can derail the economic story of any country — including India’s.

Growth prospects

Globally, India stands out with growth in excess of 7 per cent and widely accepted forecasts of up to 8 per cent. All this sounds excellent. But almost all commentators nationally or globally add that a sustained growth rate below double-digit is not likely to address either job creation needs or the possibility of raising people out of underemployment. So the euphoria must be tempered.

It also needs to be pointed out that these are formal growth numbers. Informal “unmeasured” growth has always topped this up by a few points and therefore the true economy was chugging along faster. However, anecdotal evidence on strains in the informal sectors could imply that real aggregate economic velocity is now lower; a simple analogy is the weather app on smartphones, which shows a “measured temperature” and the “real feel”.

India needs profound choices for its economic growth. It is a stark reality that consumption has been driving growth rather than investment. The resulting perception that “all must be well” generates more confidence in a citizen than it should, but lack of investment should worry policy architects.

The consumer story

More so as the last consumer confidence survey by the Reserve Bank of India shows household perceptions on general economic situation as dipping (though still optimistic) and downward outlooks on employment in general.

So, one doesn’t really know where consumption story is headed. This increases the risk in the economy. Inducing growth via government spending cannot last indefinitely. The downtrend in private investment must recover to increase value-generating capacities. This requires, amongst other things, domestic conditions — not just financial but across multiple factors — to become far more supportive of private investment than they are at present.

For the nth time one now reads articles or editorials that in effect suggest “by all accounts the new financial year will be one of recovery”.

Though some sectors seem to be doing well, by and large the generic and continuing analysis remains that pain is caused by (a) unutilised capacities due to lack of demand and (b) twin balance-sheet problems.

Analysts articulate — markets will pick up, banks will lend once again and — hurrah — all should be well. But is it really going to be so simple?

A foreign portfolio manager putting in money — perhaps in a limited float of equity of profitable operating companies, in the fastest growing market in the world — is a different cup of tea from a domestic investment which must pay back its outlay over the next few years, or face peril.

‘Broad-basing’ investments

Start-ups with probabilistic chances of survival (as per global norms it could be one out of dozens) or service sector growth are unable to provide the economic bulk and job potential of industrial growth. Even 100 top corporations cannot provide this. It must be vastly more broad-based.

In the circumstances, rather than be critical or defensive about any participants in the equation, taking a fresh and hard look at what is needed to drive fresh investment is probably relevant.

It is not to suggest that industry bodies or businesses have not done so, nor do I suggest that the government has neglected this. But it is easy to laud numbers and lavish praise on an investment destination, whether you belong in the country or look from abroad. Real proof of the pudding is people putting money on the line.

Investment numbers may well be higher than in many earlier years. But is that quantum sufficient to drive sustainable double-digit growth? If not, it is reasonable to hypothesise that we still do not have the right or comprehensive set of answers.

A beginning could be made by a critical assessment of the overall risk of doing business vs. pure business risk, on the basis that the entrepreneur commits no wilful transgressions.

Competitiveness in the context of the global marketplace as well as our access to markets will be the test by which viability of any future investment will be proven. Competitiveness is not just an outcome of operating efficiency but also costs of inputs, logistics, energy and land.

Future viability and risks merit a comprehensive and informed debate. This debate is all the more important if we take stock of the delicate times the banking sector faces. Its risk-taking capacity in the near future and the prevailing assumption of a fresh lending cycle needs to be validated.

It is a real world learning that failure of any group to explicitly define a problem often leads to solving the wrong problem.

The way ahead

Failure to explicitly catalogue all key objectives encourages focusing on softer factors and dissuades soul-searching.

This blurs lines between processes and fundamental policies. Discussions can get limited to only few alternative courses of action, and inclinations of the majority do not get critically examined for hazards that are not prima-facie obvious.

It is of course essential to establish and strengthen virtuous standards all across the economic spectrum — at both the end of businesses and of the establishment. But incessant commentaries and reactions cannot dominate to the extent that productive narratives become irrelevant or are absent. We need greater positivity from all governance levels, beyond mere exhortation.

In a complex pursuit charting a course of action first requires a robust participative format where every aspect is honestly appreciated and evaluated. Paraphrasing Robert Kennedy “Opinion, even fact itself, can best be judged by debate”.

The writer is an entreprenuer and former President of FICCI

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