Datanomics: Is it time for the private sector to step up investments?

It is widely believed that investments these days are generally driven by the government as the private sector is yet to show its animal spirit

The government has timed the GST rationalisation well. Shraadh — a 15-day period when people avoid buying new products — ended Sunday, ushering in Navaratri when people usually go on a shopping spree. This, along with an increase in the personal income tax exemption limit under the new tax regime to ₹12 lakh in the recent Budget would leave people with ₹2.5 trillion extra money, said PM Narendra Modi.  He expects this “savings festival” and GST reforms to boost spending by the people and accelerate investments.  It is widely believed that investments these days are being driven by the government. And that the private sector is yet to show its animal spirits. Although the governments are firing on all engines to boost the economy, their share of total investment still falls short of 15 per cent.

 

Private sector’s share in total investment falls

 

The contribution of non-financial private corporations to investments fell to at least seven-year low in 2023-24, but still accounted for one-third of the total. The household sector, including proprietorship, partnership firms, and charitable org­a­nisations, contributed the highest at around 40 per cent during these years. The much-touted investments from the governments, both the Centre and the states, chipped in another 11-13 per cent. 

 

Who finances these investments?

 

Household sector, which here also includes individual households has been the largest contributor. Corporations, both public and private, chipped in another one-third of total finances. It is the central and state governments, which have had negative contributions.  It should be noted that as the external environment weakens, the contribution of net capital inflows may not be significant in the coming months.