Reviving corporate investment cycle is essential for growth. But while lower interest rates and certainty in tax laws will help, former chief statistician Pronab Sen says no one can pinpoint what drives investor sentiment. Sen, country head of International Growth Centre and former principal advisor (Planning Commission) tells Surabhi that it is possible to have an average 8 per cent growth in the 12th Plan period. Excerpts:
Do you think that 8 per cent growth is possible in the 12th Five-Year Plan?
I am biased towards the plan because I have worked on it. But let me give you the history. Even in the 10th Plan, from 2002-2007, we had a growth target of 8 per cent. This came on the back of 2002-03, when the growth rate was about 4.6 per cent as we had a bad monsoon and we were still part of the slowdown of 1997. Everybody sniggered at the 8 per cent target. But at the end of the Plan period, the average growth was about 7.6 per cent. Today, our starting point is better — at 5.6 per cent, so growth will be significantly better. The real question is what will you do to make that sort of a turnaround happen? We know from our own history that it is possible.
So what are the steps needed for such a turn around?
The fact of the matter is that corporate investments are down very seriously at 5.5 to 6 per cent of the GDP, which is almost at the level of 2009-10 in the aftermath of the global crisis. I don’t think anyone really knows what will bring it back. A lot of people are talking about interest rates, but I don’t think it matters to such a great extent. The real question is what is driving investor sentiments? Resources are not an issue. It is just the desire to invest that is a problem. Data from companies shows that over the last two years their dividend payout has increased hugely. What is happening is that companies believe that growth is not a driver, so it is better to keep investors happy by giving them dividends. If the investment opportunities are perceived and companies expect growth, this trend will reverse in a very short time of six to eight months. But basically we have no idea on what drives growth.
What are the ways to improve investment