Ourview | Investment, investment

The problem is well known: a slowing economy. It is now time to seek answers.

The best place to begin is by asking what can be done to get investment activity back on track. For those who came in late, it is consumer demand that is holding up economic growth in India while capacity creation has been very weak. What can be done?

Here are three immediate solutions that could be looked into.

First, many private sector projects have been caught in red tape at the implementation stage, according to data from Centre for Monitoring Indian Economy. Some of these delays may be because of genuine problems on the ground, such as opposition from displaced land owners or local communities who believe they have got a raw deal. But most are because of government indecision as a result of a weak government and a bureaucracy that is scared to getting accused of corruption. Clearing this clogged investment pipeline is important.

Second, public sector units are sitting on a huge cash pile. They must be goaded to either use the cash directly to build new capacity or increase dividend payouts so that the government can spend the money on new public projects. The largest government companies such as Coal India, ONGC, Steel Authority of India and NTPC are sitting on an estimated Rs1.8 trillion of reserves. It would also help if the government uses one-off windfalls from telecom auctions or disinvestments to invest in new infrastructure, rather than to underwrite subsidies.

Third, an investment revival will also need improved business confidence. It is time people faced the stark reality that there will be no big-bang reforms right away. But a quick move towards a goods and services tax and direct tax reforms will show that all hope is not lost. It would be far more productive to spend scarce money to convince the states to quickly accept GST rather than budgeting Rs30,000 crore for yet another Air India bailout.

These steps can be taken quickly. There are two longer-term issues. First, the very politics of the United Progressive Alliance is tilted towards inflationary revenue spending rather than capital spending that seeds future growth. Second, private sector investments will continue to be crowded out thanks to the large fiscal deficit; it has been pointed out by some economists that the increase is the primary deficit since 2009 is almost equal to the decline in the investment rate as a percentage of gross domestic product.

These structural problems are perhaps more important, but there are some temporary measures that can be launched right away.

What can be done to revive a slowing economy? Tell us at views@livemint.com

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