India. Private Investments.

Boosting Private Investment In India, Presented By- Mohit Singh.

Ways to Boost Private Investment In India In Order To Enhance Growth Rate, Employment, Exports. 

If we will see the economy of India, then the primary reason that is contributing towards the growth of India's economy are Consumption and Government Spending. In India Consumption and Government Spending are the main source for gross capital formation and investment in the economy. But the problem is that, Government spending led growth is bound to hit plateau, in order to break this barrier Private Investment has to come into play to further accelerate economy, and when I am talking about private investment then it means that there should be least intervention from government side at a time when private firms want to expand their base the way they want. Government  should only intervene to the extent of imposing basic and necessary regulations. 

Current Growth Scenario in India: As we know that the economy of India is largely powered by Domestic Consumption and Government Spending, thus causing hindrance in India's rapid economic growth. The two most powerful engines for economic growth of any country are exports and private investments. In the case of India, the growth of exports and private investment are very sluggish thus leading to sluggish growth of economy, also causing uncertainty in the growth of economy. If we closely analyse the relation between private investment, consumption, public spending and exports then we will observe that with the increase in private investment of a country consumption, exports and public spending (public spending especially in priority sector) of that country also get a boost. So it is quite imperative for private investments to encroach upon a country, that's why the present government is emphasizing so much on FDI, Make in India, Start Ups and many more initiatives related to growth of private investments. But still our government has to face a major challenge, despite of such great initiatives the private investments share in our economy stands at a mere 29%.

What has to be done: What do we see is that whenever the private investments grows sluggish or private firms fail in some sectors then the government comes in as an investor and starts investing in those sectors where private sectors have failed or is on the verge of collapse, thus making efforts to save those ailing firms and sectors, and also to maintain the growth. This is a good step for a short term period but in the long run too much government spending can lead to crisis. As the capacity of government to make investments in infrastructure or to make capital intensive sectors are limited because the resources with the government are limited, therefore in the medium and long run this strategy won't work, in addition too much government spending can lead to widening of fiscal deficit, to the contrary every government aims to achieve fiscal consolidation. In order to boost economy of a country, private investment has to come into play, in order to boost private investment the government needs to make certain structural changes, and such changes needs to start at the ministry of finance level, it means that Balance of Power needs to change. At present all the powers and functions are concentrated in the hands of Departments of Revenue and Expenditure, so all these powers and functions needs to diversify and shared with the Departments of Economic Affairs and Financial Services. All such changes would contribute towards increase in Private Investments thus boosting exports, jobs and that too better paid jobs. 

What should be the Priorities of Government: I.) Changes- The government needs to adopt structural changes, but that doesn't mean that the government should go for abrupt changes, as it can have an impact on smooth running economy and will also affect the confidence of investors, as which investor would like to invest in an economy which is undergoing constant changes because constant changes in an economy causes uncertainty, thus it can impact ease of doing business.  

II.) PSUs- Second priority should be managing PSUs (Public Sector Undertakings). Regarding PSUs government should consider strategic disinvestment and privatisation plans i.e., privatising PSUs. But all this should not be in a hurry otherwise PSUs in the hands of weak private companies can cause disaster in employment sector and also can impact economy as a whole. As we all have seen big companies falling thus running into permanent failure. 

III.) FDI (Foreign Direct Investment)- FDIs are investments made in a country by foreign entities. Government must revisit and rationalise on the FDI Cap that are set across various sectors.

IV.) Tax: Certain tax reforms can also be adopted by government especially regarding Direct Taxes. For instance recent GST Reform by Modi Government. 

V.) Dispute Resolution: Our Indian Judiciary is very Slow and Sluggish. This inefficient behaviour of Indian Courts creates hindrance in the smooth progress of Ease of doing business as Indian Courts consume a lot of time in settling disputes or resolving conflicts. So in order to faster settling of disputes government should consider establishing arbitrators, tribunals etc.