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| Reforms needed to boost growth |
| BS Reporter / Mumbai Jul 03, 2009, 00:39 IST |
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Cost of borrowing still not enough to spur investment.
The Economic Survey has called for wide-ranging reforms to boost investments and revive industrial growth. It also says the pace of investments wold have declined in 2008-09, the figures yet to be computed.
Acknowledging the concern amongst investors about slow policy reforms, the survey has called for bringing about a series of interventions in the backdrop of industrial growth slowing for the eight consecutive quarters ending March 2009 (see chart).
The survey notes the anticipated decline in gross fixed capital formation — total fixed assets purchased by government and corporate entities — which is a key indicator of investment scenario. Reasons include the high interest rate regime adopted in the first six months of 2008, resulting in costly access to liquidity. Moreover, most of this inflation was seen in the commodity space, as a result of which industry had lesser funds to spare for investments.
Also, in spite of RBI bringing down key policy rates in the last two quarters of 2008-09, the cost of borrowing remained above industry expectations. As a result, industry expected more interest rate cuts and deferred investment decisions.
The investment rate — gross domestic capital formation as a percentage of GDP — stood at 39.3 per cent in 2007-08, compared with 37.1 per cent in the previous year, the survey said. This rise was mainly due to enhanced investments by the corporate sector in the year under consideration.
The savings rate — gross domestic savings as a percentage of GDP — during the year under consideration stood at 37.9 per cent, as against 36 per cent in the previous year. The numbers for the last fiscal (2008-09) are yet to be computed.
As increase in investments outpaced that of savings, the gap between them had widened to minus 1.4 per cent, from minus 1.1 per cent in the year ago period. The increased gap is a sign that investments had fuelled the growth in the economy, an indicator of robust demand then.
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