Investment rate to increase to 29% of GDP in FY 20 : Care Ratings

The investment rate is expected to rise to 29 percent of the GDP in 2019-20 from 28.9 percent in 2018-19 backed by government spends on infrastructure, as per a Care Rating report. 
 
The investment rate is expected to pick up considerably with a lag. The investment would be fuelled by an increase in public expenditure, especially in infrastructure. The investment rate had fallen sharply since 2014 and is yet to pick up. Economic growth last year was supported by exports and public expenditure. 
 
Investment sentiment in India continues to be subdued. Inflation will remain moderate. Investments were also helped by a rise in the capacity utilization rate of businesses (based upon RBI’s capacity utilization survey) from 73.1 percent in 2017-18 (annual average) to 75.9 percent in Q3 of 2018-19.
 
These numbers, which are based on a sample of companies, are however a bit difficult to reconcile with the low Index of Industrial Production (IIP) growth witnessed during the year. IIP has fallen sharply in the second half of this fiscal year showed the business sentiment and slowdown in demand.  
 
“A rise in capacity utilization prompts new investments. Investments have been tended to be sustained by higher government/public spending. Private investment continues to be restrained primarily on account of lower demand and financial constraints. Political uncertainty has also been a factor that limited private investments during the last two months,”, the report added.