Faced with a sea of stalled investment projects, finance minister P Chidambaram is understandably exercised, which is why he is exhorting PSUs to invest more, even threatening to take away their spare cash if they don’t do so. That, as we’ve pointed out before (http://goo.gl/cxvrE) and (http://goo.gl/ue4Yr) is probably not a great idea. If PSUs are sitting on cash, it’s probably because their investments are being slowed. ONGC, for instance, has R28,768 crore of cash, but it invests more than this each year, and a three-year delay in getting permissions for its KG Basin field held back what was likely to be a $5 billion investment over 10-15 years. And to the extent government policy makes sectors like oil unattractive—oil PSUs gave out subsidies worth R1,58,300 crore over the last five years—why would PSUs want to invest anyway?
Even this, however, is missing the wood for the trees. With a 20-21% share of GDP, and falling steadily with the government rightly chipping away at PSU monopolies, the public sector (and that includes the government) is batting well above its average since it accounts for around 26-27% of total investment in the country. So the finance minister would do well to relook his exhortation to PSUs.
Before we delve a little more into public investment (from either the government or from PSUs), it’s important to keep in mind the factors that determined India’s turnaround from the early 2000s to the mid-2000s and the subsequent collapse. First, it was the sharp reduction in government dissavings—government overspent R99,000 crore in 1999-2000 and began saving R25,000 crore in 2007-08 according to CSO data on savings in India—and nothing else, that helped overall public savings rise from -0.8% of GDP to 5% of GDP over the same period. This helped India’s overall savings improve from 25% of GDP in 1999-2000 to 36.8% by 2007-08. When the government started over-spending again and dissavings rose to R2,03,500 crore in 2009-10, public sector savings fell to 0.2% of GDP and overall savings fell to 33.8% of GDP.
The mirror image of this picture is the sharp rise in investments by India Inc. From a mere 7.4% of GDP in 1999-2000, the rise in the global economy, the China-led boom in commodities and the growth of the Indian economy led to India Inc’s investments rising to a stunning 17.3% of GDP by 2007-08. In terms of the overall investment in the economy,