On May 25, the Modi government will complete three years in office. The economy has clocked growth rate of over 7% during this period, the stock markets are on a roll, inflation is down, fiscal deficit is under check and real rates are positive. However, bank credit growth has dropped because of rising stressed assets of lenders, especially the state-owned ones. Capex too, has remained subdued.
Foreign direct investment inflows have doubled from $22 billion in 2013 to $46 billion in 2016 and net FDI alone completely funded India’s current account deficit over the last three years. While export growth collapsed since FY15, it has gradually been growing now because of an uptick in global growth.
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Unfortunately, despite the government’s sincere attempts at raising public spending, investment formation remains anaemic. Private sector capital formation, which accounts for 75% of total fixed capital formation, has grown at just 2% in FY16 affecting employment generation. Going forward, job creation will be critical for the government’s economic agenda as it enters the last two years of its term.