There have been innumerable policy interventions by the government largely aimed to make inclusive growth model a reality and the government must be congratulated for the initiatives taken by it
The first day of the New Year brings a host of unanswered questions. The past year was indeed eventful and each event, if considered by its outcome, has not yet completed the scheduled time to evaluate the results adequately. For the industry the big push is still to come and IIP data particularly on manufacturing show a cheerless journey all along. GDP in H1 of FY17 (derived from GVA) at 7.2% remained the highest in the world primarily led by private and government consumption (share of 66%). However the declining gross fixed capital formation (29.3% of GDP in Q2 FY17) remained a concern.
There has been innumerable policy interventions by the government largely aimed to make inclusive growth model a reality and the government must be congratulated that this forgotten charter of development has been placed as the centre piece of country’s journey to progress. Looking from a different angle, the model for the first time attempts to utilise the potential of human capital by empowering, enlightening, skilling and offering decent qualities of life thereby enabling them to both contribute and enjoy the fruits of development that they have been largely deprived of.
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This model requires more capital for the social sectors in health, education and family welfare to make a meaningful difference in the life standards of more than 70% of our population. And for generating more employment opportunities to absorb the 12 million of our youth entering the job market every year, the agriculture, industry and service sectors need to be provided with more public and private investment for enabling them to grow at a much faster rate.
Roughly, a 5% growth in share of fixed capital formation in GDP at market prices from the current level of 31.2% (FY16) requires R5,67,512 crore of additional fund. The resultant share of GFCF in GDP (36.2%) may be compared to its highest share of 34.3% achieved in FY12 and appears feasible under the current circumstances. The objective of demonetisation and eradicating black money is to raise additional fund for meeting the various needs of development in the country. Out of a total amount of approximately R15 lakh crore of liquidity withdrawn from the market which was to be converted into white money after paying penalties, additional taxes and levies, a sum of R5.7 lakh crore to supplement the investible funds for social and economic sectors in the country is feasible to be earmarked. In the 12th plan document the investment in infrastructure was envisaged to reach 8% of GDP in the terminal year of the plan i.e. by 2016-17 with a total projected investment of $1 trillion in 5 years. In terms of current exchange rate, it amounts to $ 0.74 trillion investment in 5 years or R10 lakh crore per annum.
A part of it must come from international agencies like World Bank, ADB, JICA which are sources for FDI in DFC, Metro Rail, water conservation, renewable energy and irrigation projects. Recent government guidelines for soft loans for house building and meeting other personal needs would attract private investment.
However, this may not be adequate to stem the continuous fall of private corporate investment. This would necessitate additional facilities in doing business, clear roadmap for taxes and levies (GST must take effect in FY18) and above all the prolonged stability in business environment to ensure fair return to investment.
It is also imperative that public investment must take care of the initial risks associated with the various infrastructure projects. It is understood that auctioning of mines has already yielded a few thousand crores to the state governments and a large part of this must be spent on development of infrastructures in the state.
The impending tax relief (including Corporate Tax) eagerly awaited in the aftermath of demonetisation would contribute to funds available for investment in infrastructure. The liquidity gap in small and medium enterprises must be taken care of by suitable credit restructuring by banks and financial Institutions. The veil of uncertainty is to be removed by mega investment by both public and private sources.