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“Entrepreneurship is the engine fuelling innovation, employment generation and economic growth. Only by creating an environment where entrepreneurship can prosper and where entrepreneurs can try new ideas and empower others can we ensure that many of the world’s issues will not go unaddressed”- Klaus Schwab, Executive Chairman, World Economic Forum.

While highlighting the importance of entrepreneurial advances, Schwab not only raised the importance of innovation but also indicated the need to get employed. Employment is an outcome of productive advancements and value additions, which are closely related with investment quantum which in turn is positively correlated with credit availability.

Productive investment, also known as Gross Capital Formation (GCF) in macroeconomic jargon, is a part of GDP, which is reproductive in nature by creating productive assets and value adding opportunities. The diminishing trend of investment with respect to India’s GDP is a matter of concern. The investment to GDP ratio for the quarter ended in March 2019 is 29.8% whereas the average for the last 10 years hovers around 36% with a maximum of 41% in September 2011. This low investment syndrome is added with the higher private consumption resulting in a multiplicative impact on slow growth of GCF. While the average private consumption in the last ten years turns out to be 56%, it has been reported as high as 61.2% for March 2019.

The higher private consumption and lower investment trend is prodding the Indian economy to a direction where demand and time deposits at banks are substantially affected. Due to lower investment potential, bank deposit is not leapfrogging and credit disbursal is negatively impacted. The savings and time deposits in banks are approximately 85% of broad money whereas other components namely currency with public and other deposits with RBI constitute only 15% in totality. It has been ascertained from the analysis of the data from 2003-04 to 2017-18 that broad money has strong correlation (coefficient is 0.88) with GCF. This reflects the importance of time and savings deposit as a key components of broad money in generating GCF and subsequently employing more people through considerable value addition.

As it has been construed from the stated facts that investment creates viable environment for capital formation and employment generation, some implementable traditional methodologies have been put to use to improve investment quantum which include beneficial interest rate regime, investment sops like income tax rebates, financial inclusion and awareness building. Apart from these, generating more investment options with sustainable return pattern may act as game-changers.

The underdeveloped corporate bond market in India may be developed and targeted for the future growth roadmap. While the corporate bond market is 16% of GDP in India, it is 75% in South Korea and approximately 45% in Malaysia. The rising growth trajectory of corporate bond market in China with 9.1% of GDP per year signifies its relevance assessed carefully by the country. Secondly, the equity market in India needs to have more information symmetry. An efficient equity market channelises investment and savings in developmental purposes. Fama (1965) propounded the efficient market hypothesis and highlighted its importance in creating an investment friendly market outlook. Thirdly, a more strategic, evaluative, time-bound and merit-based credit appraisal with transparency and accountability may clear the cloud over extraordinarily cautious lending in India.

Our country is in real need of household and corporate savings and its methodical investment orientation through multiple yet to be developed means which can form reproductive capital and generate multifarious developmental means with a much needed end employment.