19 SEP,2022 | MEDC
Governments around the world are taking extraordinary measures to revive their economies in the post-Covid period. In this regard, the investor-friendliness of the economy has a central role to play. Increasing investment – both public and private – could help revive economic activity from the sharpest and deepest global economic downturn in almost a century. It could also create millions of jobs directly in the short-term and millions more indirectly over a longer period. Even though private investment in India is emerging from a long slump, it has – so far – not met expectations. What is probably missing are the animal spirits required to ignite growth in today's abnormal situation.
The differences between public and private investment are as striking as their similarities. Solutions to ensure that public and private markets complement each other will see companies and investors getting the best of both the worlds. A fine balance has to be maintained. It is good to know that private enterprise is growing exponentially in India, but if companies continue to raise money through private mechanisms, there are consequences for inclusive growth and wealth generation. Indian policymakers need to regulate this fragile area carefully.
Without a rapid-growth strategy revolving around investment, consumption and exports, it will be difficult for India to make up for the lost growth of the past few years and reap the demographic dividend of a relatively large workforce with relatively few dependents. Inflation remains a persistent threat to the economy. Government spending will need to expand, not in nominal terms, but in real terms. If India's investment-related issues are due to anything, it is to a legacy of poor choices in the corridors of power, from a chronic failure to invest systematically in human development initiatives to shying away from a fuller transition to a truly competitive economy.
Our production linked incentive (PLI) scheme is devised more for self-reliance than for export orientation. That may need a relook. We still lack the overall policy coherence needed for launching us on the optimal path to prosperity. The cause-effect relationship between consumption and employment is not yet clear in India, and to build a truly efficient economy we need to rely on the development of animal spirits amongst investors beyond the official realm. The environment to realize that is not yet put adequately in place. India also needs to get its physical infrastructure development (especially for the manufacturing sector) in order … that is the best way to promote economic resiliencein today's changing world.
On their part, investors should beproactive in fostering good governance policies and practices regarding the companies in their portfolios. This is already pursued by some Indian investors who realize that good governance is a sine qua non for sustained value generation. On its part, government must promote long-term involvement and engagement in theeconomy, by providing investors the necessary incentives and policy continuity throughout.
Investment is a powerful element of thedomestic stimulus package to contain the economic fallout of the pandemic and the Ukraine crisis. However, that may involve taking some politically difficult decisions. A sustainable economic revival will necessitate a minimum level of policy predictability. Covid has not killed globalization, and in today's age of international economic integration there are some costs that cannot be avoided. India's attempt to position itself as an attractive global investment destination will not be an overnight success, and we should be prepared to realign our policies and priorities with the changing times.