Early signs of private investment picking up, quick project rollouts will help: Industry chambers

India has seen a spate of recent project announcements in railway, power, airports, green energy and electronics manufacturing. The government’s production-linked incentive schemes are also expected to boost investments in over a dozen sectors.

Private investment in India is picking up in some sectors but will need a government push to sustain the pace, according to the chambers of industry.

“Private investment is picking up in sectors like infrastructure, green energy and electronics,” Deepak Sood, Secretary General at ASSOCHAM, told Moneycontrol. “Quicker execution of the projects in the railways, ports, airports and highways, as was witnessed in 2022-23, would make a difference in creating a positive spiral for the private investment to crowd in.”

Still, given the volatile global economy, it would take a few quarters before clarity surfaces on the private investment path, he added.

To be sure, India is expected to maintain its pole position as the world’s fastest-growing economy this year despite global geopolitical and financial uncertainties.

Prime Minister Narendra Modi’s government unveiled a growth-supportive Budget for this financial year with a record capital expenditure outlay of Rs 10 lakh crore. The government has in recent years raised its capital spending substantially, aimed at enhancing the growth potential of the world’s most populous country that seeks to become a developed economy by 2047.

India has seen a spate of recent project announcements in railway, power, airports, green energy and electronics manufacturing. The government’s production-linked incentive schemes are also expected to boost investments in over a dozen sectors. The government is also said to have asked the World Bank to help boost private investment in infrastructure.

Still, private investments have been lingering in recent years amid multiple economic shocks even as the economy achieves a greater level of formalisation because of a push by the authorities.

Going ahead, the government’s thrust on capital expenditure, above-trend capacity utilisation in manufacturing, double-digit credit growth and the moderation in commodity prices are expected to bolster manufacturing and investment activity, the Reserve Bank of India (RBI) staff said in April.

According to research by RBI, the government’s focus on capital expenditure in the recent Budgets could be effective in stimulating private investment and domestic demand with beneficial effects accruing over time. The multiplier for public investment on private investment is 1.2 and the overall gross domestic product is 1.7 over a three-year period, it showed.

“A recovery in private investments is underway as the government has undertaken a plethora of economic reform measures to create a conducive business environment in the country along with substantially increasing private capex,” Saket Dalmia, President of PHD Chamber of Commerce and Industry, told Moneycontrol.

Emerging new businesses like fintech, increasing use of digital infrastructure across sectors, e-commerce and the government’s focus on artificial intelligence will provide the platform for new players to bring in fresh private investments, he added.

Dalmia suggests that further simplification of compliances and decriminalising minor offences under the Companies Act will also go a long way in attracting private investments.

According to the RBI’s surveys, businesses and consumers are optimistic about the future outlook. However, external demand drag could accentuate while protracted geopolitical tensions, tight global financial conditions and global financial market volatility pose risks to the outlook.

The capacity utilisation in the manufacturing sector improved marginally to 74.3 percent in the third quarter of 2022-23 from 74.0 percent in the previous quarter, according to the latest data from the RBI.

“New incoming information suggests that the growth outlook for 2023-24 has improved with investment revival likely to become more entrenched along with a lesser drag from external demand,” Rajiv Ranjan, RBI Executive Director and a member of the rate-setting panel said in the minutes of the April meeting.

“The government’s sustained focus on infrastructure spending will also crowd in private investment and support growth,” Ranjan added.