|Investment is the key|
|Saturday, 01 June 2013 17:14|
Indian Express editorial
The PM's meeting today, to clear stuck projects, is critical as consumption is still slowing
Given the trends in the GDP over the past few quarters, in industrial production as well in forward-looking indices like the PMI, the 4.8 per cent GDP growth for the fourth quarter of 2012-13 doesn't come as much of a surprise; for the full year, this means GDP growth will be 5 per cent, a decadal low. Since India got nearly $37 billion of FDI in such a bad year and $27 billion of FII, it is tempting to think the surge in global liquidity will see India through the bad times. A look at the disaggregated numbers, however, makes it clear that the bounce-back may not be as automatic as many think. Investment growth has been falling for several quarters, from 4.5 per cent in the third quarter of the year to 3.4 per cent in the last quarter — for the full year, investment growth has fallen by almost two thirds. Apart from the order books of capital goods-producing firms looking bad, sales of commercial vehicles — a leading indicator for an upturn — continue to contract.
With the government also making sharp cuts in its expenditure to get the deficit under control, a must if India wants to retain even its current poor credit ratings, the one thing that has kept growth up was consumption expenditure. Even in the great financial crisis of 2008 and its aftermath, private consumption held up for a variety of reasons; some had to do with government programmes like MGNREGA, higher procurement prices and, most important, the Pay Commission money coming in 2008-09 and 2009-10. So, even as the economy slowed, private consumer-spend rose by around 8 per cent annually. In 2012-13, however, as consumer confidence fell — how long can people retain jobs in the face of stagnating bottomlines and even large losses? — growth in consumer spending slowed to half. Indeed, this fell to below 4 per cent in the last quarter of 2012-13.
Given this, investment revival is critical, which is why it is a good thing the prime minister plans a high-level meeting today to figure out ways to clear projects that are stuck. Today's meeting is in addition to the regular ones by the Cabinet Committee on Investment. Reviving investments, of course, may not be easy either, even assuming more projects get cleared, as the cycle of bank loans getting bad hasn't peaked and large sections of India Inc are so leveraged, they have little money to invest. What will help is their selling assets at reasonable prices and the government coming out with some sensible policy decisions — some of the restrictions on multi-brand retail, such as on SMEs, make it impossible for big foreign retailers to invest. Since getting it all together will take time, the last thing India needs right now is an early election.