Tax cuts robust banking sector to revive private investment.
Government capital expenditure has been the spotlight of India’s investment with private funding lagging, but It could change if the new administration strengthening the banking sector by boosting household savings and tax cuts.
Gross fixed capital formation an indicator of investment to grow 10% in 2018-19 from 9.3% in FY18. Average investment growth was 9.2% in FY17-19 higher than the 3.6% gross fixed capital formation growth over FY14-FY16.
The currently expected investment recovery heavily depends on government spending as incremental private corporate to revive.
“Sustained effort to resolve the non-performing asset situation in the banking sector, reforms in doing business and revamping the ‘Make in India’ strategy are some key areas to work on,” said Tushar Arora, senior economist.
NPAs and non-banking financial companies liquidity should be a priority to robust banking sector.
Higher capacity utilization has not a loss in industrial sector output and capital good production. Factory output, as measured by the Industrial Production grew at a three-year low of 3.6% in 2018-19.
Research said that the inability to stuck capital back into the production process would have implication for investment recovery.
Resolving structural issues is key to private sector investment. It can be by reviving household savings and finding a solution for funds stuck in the real estate sector. This will boost consumption, savings, and investment.
As per Kotak Institution, the household savings declined to 17.2% in FY18 from 23.6% in FY12.
“The ‘Make in India’ strategy need to revamp to include services and agriculture in India. We still score low in paying taxes when it comes to ease of doing business. Land and labor reforms haven’t got much attention,” said an economist of a domestic bank.