Is The Long Wait For Private Investment Over?

FM's asked India Inc to invest more. A confluence of factors suggests this may happen late 2022-23

- Yuvika Singhal

India Inc has not participated in revving up the capex spend in recent years at a broad-based level. But against the backdrop of structural reforms undertaken over the last few years and cyclical improvement in demand impulses in the post-pandemic world, today's favourably aligned macroeconomic variables should pave the way for a decisive turnaround in the private capex cycle late FY23 onwards.

First let's take stock of what FM Sitharaman has highlighted: the disappointing state of private investments despite Gol and RBI both trying to revive animal spirits via structural and cyclical measures.

Gross fixed capital formation (GFCF) as a percentage of GDP peaked at 34.3% in FY12 and since then has remained lower in the range of 30-32% broadly.

Share of the manufacturing sector as a percentage of GVA topped at 18.4% in FY18 but succumbed to a low of 17.1% in FY20 owing to the pandemic.

While FY22 saw the share revert close to the pre-pandemic level, it remains well below the policy vision of 25%.

As a fallout, labour force participation rate for India has seen a monotonic decline, slipping below 40% in 2022 a moderation of nearly 3.2% compared to pre-pandemic levels.

The question is, what drives private investment in India? We undertook a regression analysis to find an analytical answer to the question. Two conclusions stand out.