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Questions for 2020: India Inc starts investing?
The Economic Times  |  December 31, 2019

ET Bureau

Unlikely Till then, the government will have to do the heavy lifting to raise capital formation.

 

India Inc is unlikely to start investing in capacity addition in a tearing hurry. The government will have to do the heavy lifting to raise capital formation. Reserve Bank of India’s (RBI) December Monetary Policy Statement says that capacity utilisation by India Inc, whether seasonally adjusted or otherwise, is well below 70%. Unless they feel that their ability to meet demand is constrained by capacity, or they see demand picking up very fast, industry has no reason to add to fresh capacity. This route to reverse the fall in Gross Fixed Capital Formation to below 30% is closed.

 

There are two other possible routes for growth in investment. One is through real estate. The other is via creation of fresh capacity in roads, railways, rolling stock, mining, water transport, airports, oil and gas pipelines, power transmission grids, replacement of old, inefficient capacity in power with new, less carbon-intensive capacity, godowns and climate-controlled storage for agricultural produce, and completion and upgrading of irrigation channels and command area development. Public funds and a sound policy could precipitate investment in these.

 

Real estate is saddled with enormous unsold or incomplete inventory. The government’s Rs 25,000 crore  Alternate Investment Fund (AIF) is a good, but a small, step to get real estate investment going.

 

Much larger vehicles must be formed to buy out stalled projects and complete them. This calls for funds and legal mechanisms to enable swift sale of insolvent real estate companies or their assets to new developers/ asset reconstruction companies.