New Delhi: In order to revive investment demand in the economy, the government should address issues related to investment plaguing sectors like real estate, manufacturing and professional services, said India Ratings and Research in its macro economic outlook for 2017-18 released on Tuesday.
Since the share of general government ( both the centre and the state) in the total investment is only 11.3%, government capex alone would have limited ability to revive the investment cycle, the report pointed out, adding that it will be critical for households to invest again along with an acceleration in private investment.
“During the financial years 2012-16, households accounted for 40.5% in the total investments, followed by private investments that had a share of 37%. Hence, a more nuanced approach to the policy making is required to revive the investment cycle which is currently focused on the government capex,” the report said, adding that the gross fixed capital formation will grow at 4.9% in 2017-18, from negative 0.2% in 2016-17.
The rating agency had projected a growth of 7.9% in 2016-17 which it revised downwards to 6.8% arguing that demonetisation will hurt the economy in the short term. Many other ratings agencies and international institutions have revised India’s growth projections to less than 7% in 2016-17 though the Central Statistical Organization (CSO), in its advanced estimates released last month, has projected India to grow at 7.1% in 2016-17, as against 7.6% in 2016-17.
The slowdown in the growth will be mainly on account of non-revival of the investment demand in the economy. This is on account of the manufacturing sector which is saddled with excess capacity and the deficit in the infrastructure sector due to the bad debt of various private companies which had invested in this sector earlier.