Union Budget 2019: Private investors are doing the vanishing act; will Nirmala Sitharaman pull a trick to lure them back?

Private investments are dropping, and the number of new projects is declining—in a drastic manner. That’s what the latest figures from the Centre for Monitoring Indian Economy (CMIE) tell us. Livemint quoted a CMIE report that investment in new projects plunged to a 15-year low in the quarter ending in June 2019. According to this report, both private and public sectors announced new projects worth Rs 43,400 crore in June 2019 quarter, 81 percent lower than what was announced in March quarter and 87 percent lower than during the same period a year ago. That’s not a new trend. There has been a fall in private investments for a while reflecting both domestic and global economic bottlenecks. The lack of funds have impacted not only new project launches but even added to the pile of stalled projects. According to finance ministry’s data, projects worth almost Rs 11 lakh crore remain ‘stalled’ or having issues. Railways, roads, and power sectors account for more than half of these stalled projects. [caption id=“attachment_6013191” align=“alignleft” width=“380”] Representational image. Reuters.[/caption] Why exactly is this happening? There are four main reasons: 1) As mentioned, global economy isn’t in a healthy condition on account of general economic bottlenecks, trade wars and other reasons specific to geographies. 2) Domestically too, the Indian economy isn’t doing well. Economic activities have slowed down accompanied by a strong demand slump. 3) Banks and non-banking finance companies (NBFCs) aren’t as aggressive in lending to projects as they used to be till a few years ago. 4) India’s redundant laws on land acquisition and labour are acting as a big turnoff to those wanting to set up factories here. What can the government do? It needs to lure private investors back into India through a combination of measures including tax sops and change in land and labor laws. The ease of doing business that the Narendra Modi government promised in its first term must happen in letter and spirit. Land acquisition continues to be a lengthy process and governed by the Land Acquisition Act of 2013. It needs to change radically. Since land is a state subject, respective state governments need to work with the Centre to bring about the change. In the past, investors got a shocker from episodes such as Singur. This kinds of incidents cannot be allowed to take place again if India needs to progress economically. Till now, the economy has been largely riding on public money. The government spending largely aided the Gross Domestic Product (GDP) growth. Sure, this was needed at a time when the private investors were absent. However, an economy which rides largely on government money for a prolonged period of time does not promise much to the economy in the long run. What is needed is the participation of private investors.

Reviving private investments is also critical to generate jobs—a major problem the Indian economy is facing at this juncture with the unemployment rate touching a 45-year high. Nirmala Sitharaman can turn her first Budget into a reformist one. There is a golden opportunity to lay out a strong, convincing blueprint to generate private investment generation and lift the economy to a faster orbit.