NEW DELHI – India’s growth seems like a dream. In the beginning of every financial year the government comes up with plans and ideas of expansion but by the end of the year these ideas fade away and rather than increase we can see the decline in the gross domestic product and the capital formation, therefore reducing the chance of any growth in our country.
With the diminishing impact of investments set during 2011-2012 has slowly taken away the stand out effect of India’s growth. The capital formation was negative at 0.2 percent during 2011 in comparison to 8.9 percent during 2010. As a result of decrement in the fixed capital formation the aggregate capital formation also dropped down to 30.6 percent of GDP from 32.8 percent. According to the RBI the project finance data has seen a downtrend as well as the corporate investment has withered away.
The pace of economic expansion has loosened up to 7.7 percent in 2011 which was less than the previous years with 8.4 percent. This percentage further dropped to 6.9 percent in July-September quarter and more to 6.1 percent in October-December quarter. There are indications about the overall growth of 7 percent in this fiscal year of 2011-2012. The government is concerned about this deterioration when the global economy is also facing mayhem especially in the European zone.
It seems like the investors both of Indian and foreign origin, are losing interest and are no longer willing to put in any money. At this Manmohan Singh, Prime Minister states that investment is an act of faith. The investors are scared about the slow pace of decision making by our policy makers and also the drift in the policy. Kaushik Basu, Chief Economic Advisor, made a comment on these crucial matters at the Carnegie Endownment for International Peace.
His statements were directing towards the Article IV consultation of the International Monetary Fund with the Indian government. IMF is recorded to have two pronged discussions with its member countries every year. The report for this year highlights the reason for weak investments are the government concerns and policy uncertainties. It was also mentioned that the investors are disappointed with government coalition, government officials indulging in scandals and the civilians revolting against the policies etc.
The government has to face a challenge of reviving these investments for the rapid economic growth of up to 9 percent every year. Since 2008-09, the year of global crisis, there has been a sharp decline in the GDP from 14 percent to 10 percent effecting the growth of our economy. In a recent IMF working paper titled “Does the Business environment Affect Corporate Investment in India?” written by Kiichi Tokuoka the above analysis in given.
