The government’s Make in India initiative saw investment pledges worth Rs.15 lakh crore. While the government expects to convert 80-85% of this amount into serious business, it is important to note that according to a research no Indian state has had a conversion rate of more than 20%. Shocking. Making big promises and then not delivering upon those promises has been a trend in this country.
Let us understand the current scenario.
- Consumer demand is low
- Industrial output fell by 1.3% in December
- The rupee is at a 30 month low
- FIIs have pulled out $2 billion this FY
- Cumulative gross NPAs of 24 listed Public Sector Banks stood at INR 3,93,035 crore (as on December 31, 2015)
The investors cannot only rely on the promises made by the government. There are a lot of factors that need due attention if the government wants to see the investment cycle in motion.
What does the Modi government need to focus on to clean up this mess?
- Stalled Projects: 304 projects which involve investments worth INR 12,758,777 crore. When projects get stuck due to whatever reason there is always a fall in investments.
- Fall in Private Investments—INR 0.50 lakh crore (approx.)
- Fall in Government Investments—INR 2 lakh crore (approx.)
- Fall in investment proposals—INR 1.20 lakh crore (approx.)
- Low Capacity Utilisation: In most manufacturing sectors the capacity utilization is around 50-70% at best. This is one of the major issues that the government needs to focus upon. The capacity utilization needs to grow in core sectors like cement and steel where it is below 60%.
- Poor Consumer Sentiment: This is one of the biggest reason why investments aren’t picking up. The job market is sluggish leading to lower demand levels. India adds about 23 million people to its workforce every year but has created only 7 million jobs annually over the past 30 years.
- Growing NPAs: The whole NPA issue is taking a toll on the economic growth. In order to de-stress their balance sheets the Public Sector Banks are stuck in a situation where they are not willing to give loans or invest in stalled projects. As the gross amount of NPA’s totaled to almost INR 3.93 lakh crore, it will take some time for banks to settle down.
There are many other issues that demand the government’s attention but these are the major factors that are actually the main reasons for those issues.
Hopefully, Budget 2016 will be pro India and not pro subsidy and tax exemptions and will provide a platform to the Government to solve these problems and get the ball rolling again.