Mumbai: The sagging economic growth can be given a boost if the private sector increases its investment as the government is not in a position to increase public spending, given its constraints, says rating agency Crisil.
The private sector, accounting for three-fourths of GDP, will have to script the economic turnaround by reviving investments and raising its contribution to overall growth, Crisil said in its report ‘Why is it critical to revive the private sector?´
The agency notes that in the two decades since 1990, the share of the public sector in GDP growth remained stagnant at 6%, whereas private sector GDP growth went up to 7.7% in the 2000s from 5.7% in the previous decade.
“The private sector’s performance during the high growth phase from 2004-05 to 2007-08 was even more impressive, as it logged 9.7% GDP growth per year.
Private corporate investments, too, had surged to 17.3% of GDP from 10.3% of GDP during this period,” Crisil said.
During the global financial crisis, investment by the private corporate sector slumped to 11.3% of GDP in the crisis year 2008-09 from 17.3% in the preceding year, it added.
“If India came out largely unscathed from the effects of the financial crisis, it was mainly due to the impetus from the public sector. During 2008-09 to 2009-10, private sector GDP growth had slipped sharply to 6% from its pre-crisis levels of 9.7% per year.
“Without a robust 12.3% growth in public sector GDP on the back of increased government spending, overall GDP growth would have averaged 6.2% and not 7.6% during these two years,” Crisil chief economist Dharmakirti Joshi said.