Such has been the recoil of private investment that new plans announced by businesses, which filled media spaces some years ago, have all but disappeared from the landscape. Public pronouncements of infrastructure projects have replaced private ones instead. It has even retreated from our memories how, in the peak years of 2006-2011, planned investment values commonly ranged between Rs 24-28 trillion; these essentially halved in the three years to 2019-20 as per the Centre for Monitoring Indian Economy database. Public investment proclamations have become the norm, accentuated further in the wake of Covid-19. It is the long slumber of private investment that the government is trying to jolt awake through change in direction, a transformed attitude, and an altogether different view about the respective roles of the public and the private sectors in the economy. Quite likely a response to popular demands for a 1991 moment to break out of the standstill, speculation is intense about the prospects of success of the new narrative.
The failure of business spending to resume despite numerous helpful measures and reforms in the past years has been glaring. Even before this February’s sharp turn in policies and viewpoint — the preceding specific thrust for domestic industry in response to Covid-19 last year and even the earlier set of measures to boost private enterprise in 2019 — industry and investors alike were urging the government for a 1991-like moment. Such voices or requests only sharpened when the pandemic struck India in what were already-depressed growth conditions. This, argued many, would charge the environment, be the electric spark that lights up the desire to invest.
One can speculate if the visible changes in direction and attitude are due to the lack of choice — binding financial constraints limiting the scope of public investments — or perhaps even the latter’s failure to stem the downslide since 2017-18. Or if this is an explicit choice to seek a different route to push growth, investments and employment, given the constant economic deterioration that has been further worsened by Covid-19. The fact is that the government has responded with some seminal changes and an altered approach towards the role of the private sector in economic progress. The changes can be broadly described as reducing government involvement in production and finance, deregulating factor markets (agriculture and labour), preferential policies for large-scale manufacturing, further liberalization, new infrastructure financing initiatives, fresh redress measures for resolving bad debts, amongst others. The production-linked incentive scheme is the centre piece fitted into the large-scale manufacturing thrust; this is now widened to include 14 industries with Rs 1.97 trillion spread out over five years for scale-acquisition in domestic production for home consumption and exports.
The transformation in thinking is obvious in some upfront decisions in this year’s budget — outright sale of public assets and non-strategic public enterprises, reducing ownership stakes in others, including strategic ones, sale of two public sector banks. Here, the government’s open embrace of ‘privatization’ against the more guarded ‘disinvestment’ casts aside a long-standing political aversion to the former nomenclature. Arguably, these shifts may have brought clarity about the government’s position on the public versus private sector debate, dispelling investors’ perceptions about ambivalence on this. The government has also withstood the political economy fallout of agriculture marketing reforms last year, holding on and signalling policy stability.
The directional turn is only one side of the effort. The other part is perhaps more important — the accompanying articulation at various public forums, including Parliament. Led by the prime minister, a new mindset has been expressed. This eschews the role of government in production, stressing the domain rightfully belongs to the private sector, which is the central driver of growth, investments and job-creation. It condemns the draining inefficiencies of public enterprises; it censures the bureaucracy for its obstructive and non-specialist character, batting for inclusion of private experts instead while scaling up industries to enhance productivity. Furthermore, there are hectic parleys, other interactions with industry at various levels by key ministers and officials. Ministries are reaching out to note industry’s concerns, seek ideas and proposals, with the active involvement of business bodies. And no less than the prime minister has discussed road maps to the PLI-scheme with top private sector executives.
In short, there is visible qualitative effort to enthuse, elicit response and get the momentum going. Even if interpreted cynically as a desperation to push for growth, a different narrative and active outreach impressing transformation can make businesses feel upbeat. Changes in laws and policies do not always translate into actual plans or investments if the agents do not feel optimistic. We only have to look back five-six years in which structural reforms, such as inflation targeting, GST, IBC, amongst others, failed to inspire private investment; growth decelerated instead and investments remained depressed. Feeling hopeful about the future really matters as that shapes decisions to take the plunge. The longing for a 1991 moment referred precisely to such feelings. Now accorded a valuable, primary place in the economy with attendant changes, positive responses could follow in the future seeing the resounding endorsement of private participants in the last one month.
What then are the chances of changing the private investment trajectory?
It is a critical question weighing on the mind of every stakeholder. Seeking an answer is difficult at this point though. One must weigh, for example, if upbeat mood and sentiments stand alone — can these be decoupled from the demand environment and associated uncertainties? Private agents also look back to look forward for their business decisions. In this instance, if the past was of economic weakening, the prospective course is exceedingly uncertain: there are doubts about the post-pandemic future of some businesses and sectors; the extent to which households and firms may have lost incomes and revenues, or increased savings, and the restoration, longevity and duration of demand and the structural shifts and resource reallocations that may have been triggered.
These are some — but not all — considerations. While there are no clear-cut answers about future investment prospects, it remains obvious that growth must stabilize enduringly in the first round for any meaningful reactions to the new economic narrative. When the pandemic itself is yet to recede in India and elsewhere in the world, lifting the declining trajectory of private investment will be up in the air for a while. Expectations of solid returns to directional change must, therefore, be tempered. The question is if the current mood uplift will endure. The stakes are high.
The author is a macroeconomist
