Finance minister P Chidambaram is understandably upset with multilateral agencies such as the IMF slashing their India growth projections for 2013 to 3.8% (down from 5.6% earlier) and, in the case of the World Bank, from 6.1% to 4.7% for FY14. The IMF projection, like many of those the agency had made for Europe as well as the US, looks a bit flaky, more so since, with data already out for half of 2013 and averaging 4.6% already, growth in the rest of the year will have to collapse to an average of 3.4%. While no one is expecting a huge recovery given the state of both industry as well as investment in general, there is little to warrant a collapse of this nature. It is true the government will have to slow down expenditure dramatically in the months ahead and this will impact growth?it has already run up a deficit of R4 lakh crore, or 75% of the total budgeted R5.4 lakh crore and this too has to be cut since this was predicated on a growth of around 6%. But there are growth-stimulating factors at work as well. The biggest is agricultural growth?while the most optimistic of estimates are looking at a 4.8% agriculture growth, estimates by CACP chief Ashok Gulati along with Surbhi Jain and Shweta Saini suggest agriculture could end up at around 5.2-5.7%, the highest level in several decades. An increase of this level could well raise GDP by around 0.3-0.4 percentage points. The fact that around R3.5 lakh crore worth of investment projects have been cleared by the Cabinet Committee on Investments is a big positive, but investments take time to add to growth. Over R3 lakh crore of these projects relate to the power sector, where the clearances relate to fuel supply agreements or allowing a price pass-through. So, given that industry is in a very poor shape?IIP has been stagnant for the last one year?the absence of buyers will put an automatic ceiling to the pace at which power sector investments will pick up.
The finance minister is doing his best to get PSUs to speed up investments?a meeting has been called later today to finalise some investment targets for two dozen cash-rich PSUs. A target of R1.4 lakh crore of investment has been set for these PSUs and, by and large, they have been on target for Q1FY14. While stalled projects have reached a mammoth 10% of projects under implementation across the country, the larger problem is that this is not really concentrated in PSUs. Between FY08 and FY12, the last year for which CSO has data, private corporate sector investments have plummeted from 14.3% of GDP to 9.7%, those for PSUs have fallen much less, from 3.4% to 3%. While PSU investments in FY12 rose just R6,800 crore as compared to R22,000 crore in FY11, private corporate investments rose just R8,500 crore in FY12 as compared to R2 lakh crore in FY11. So while raising PSU investments will help, though they will take time, there is just that much this can yield.
