September 13, 2017
9 months

How do public and private investments contribute to 'real growth'? In this context, analyse the causes for the recent low GDP numbers and suggest measures to revive the economy.

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IAS Parliament 9 months

Key Points

·        Investment - Engine for the economic growth of a nation.

·        Public and Private investment are two engines to propel an Economy.

·        Investment means an increase in capital spending (e.g.) buying new machines, building new factories etc.

·        Investment is something that creates a demand for goods and services in a market which in turn increases the productive capacity of the economy resulting in high economic growth trajectory.

Causes for recent low GDP numbers

·        Demonetisation resulted in liquidity mop-up

·        Inventory Deaccumulation prior to roll out of GST

·        Consistent Rupee appreciation leads to poor exports

·        Sharp fall in Private investment (both corporate and households)

Suggestions to revive Indian Economy

·        Boost up private investment - Creating an appropriate investment climate by proper implementation of landmark reforms in Indian economy such as GST, IBC, Bank merger alternative mechanism and FDI reforms.

·        Recapitalisation of banks to make banks come out of the NPA crunch in order to supply credit to investors at right time.

·        More disinvestment needed to fund recapitalisation of banks.

·        Promoting stalled private projects and create an opportunity to revive those in to completion.

·        Holding consultations with stakeholders of private investment to understand the obstacles causing project stalling and remove it completely in the future.

·        Boost up exports - Negotiate Trade facilitation agreements (TFA) such as Regional comprehensive economic co-operation (RCEP) in favour of Indian side. i.e.  India accessing service sector markets of RCEP nations.

·        Form Joint working groups in order to address trade deficits with other nations as similar to India and china agreed to form industry specific working groups to address bilateral trade imbalances.

·        Making credit available to Medium and small enterprises so that they can produce bulk quantities that are favourable for exports.

·        Foreign Direct Investment Vs Rupee appreciation - Insolvency & Bankruptcy Code and Goods & Services Tax are the milestones in Indian Economy, which sets a stage for India in International forum as an FDI destination.

·        Balancing huge inflow of FDI and resultant Rupee strengthening is also have to be taken in to consideration.