Economic Growth Hinges On Private Investments, Says NITI Aayog’s Amitabh Kant

The private sector will have to step up investments to spur economic growth in India, industry veterans and policymakers said at the Bloomberg India Economic Forum 2017.

There is not enough private sector investments in either infrastructure or manufacturing because a lot of investors have already “burnt their hands” in projects and hence lost confidence, said Shanti Ekambaram, president of consumer banking at Kotak Mahindra Bank, in a panel discussion.

Private investments in India have been crippled by the mounting corporate debt and inadequate capacity utilisation. Lenders, already sitting on more than Rs 8 lakh crore of bad debt, are unwilling to lend more, resulting in shrinking private sector activity.

The private sector is under pressure to generate returns on investments they've already made, according to R Shankar Raman, chief financial officer of engineering and infrastructure giant Larsen & Toubro Ltd..

Companies in the private sector are ready to buy assets which can generate returns quickly, said Rashesh Shah of Edelweiss Securities. However, they are still hesitant to take on greenfield projects which require a higher quantum of investments and take a longer to generate returns, Shah explained.

The government frontloaded its expenditure in the current financial year in order to kickstart the investment cycle, and has already used up 92 percent of its budgeted estimate. Finance Minister Arun Jaitley, in his keynote speech at the event, called for more investments from local companies.

Also Read: Jaitley Says India Needs Balance, Not Panic, to Spur Economy

The private sector, and not the government, is primarily responsible for creating growth in an economy, said Amitabh Kant, chief executive officer of government think-tank NITI Aayog. The government’s job is to facilitate conditions that make private investments come in, he added.

Kant said that the government needs to push for divestment of public sector units more aggressively and sell its inefficiently-run assets to private firms. “There is no rationale for the government to be running airports and highways,” he said. “Put them out into the market , there will be better maintenance and efficiency. That will bring private investments,” Kant added.

Another issue is the financialisation of assets in the economy, Ekambaram said. There is enough money in the system, but most of it is flowing into financial assets and not “real productive assets”, she said. In such a scenario, companies are focusing on improving productivity and efficiency to boost returns, which in turn is creating troubles on the employment front, Ekambaram added.