The first few months of 2019 have seen the lowest new investment proposals in India in the last 14 years. The ‘Centre for Monitoring Indian Economy’ report states investments in Q4 of FY 2019 added only Rs. 9.5 lakh crore. These figures are unlikely to experience any significant change in the upcoming quarters of FY 20. This is likely to impact investment rates negatively.
The ‘Annual Report - 2018-19’ of the Reserve Bank of India (RBI) states, “India’s real GDP growth clocked an average of 7.7% during 2014-18 and 8% in Q1 of 2018-19, but it began to shed momentum through the rest of 2018-19.” Significantly, the International Monetary Fund (IMF) expects global growth to be sluggish as it may drop to 3.2% in 2019 from 3.6% in the previous year and this will negatively impact the Indian economy. The RBI also reports, “The Index of Industrial Production (IIP) growth decelerated during 2018-19 to a three-year low of 3.8% and this was driven by deceleration in manufacturing.” Only India’s macroeconomic stability has been a point of hope and inflation stayed below the target of 4% for FY 19.
Investment is the spinning wheel of growth in any economy. The RBI report added further, “The investment rate, measured by the ratio of gross capital formation to GDP had fallen to 32.3% in 2017-18. It was staging a tenuous recovery from the second half of 2017-18 when in a span of barely 12 months, it is losing that momentum.”
Sudip Ghosh, MD, VIP Industries, told BE, “The economy, walking slowly towards recession, may only revive by more spending by the government and individuals. The government should ensure a situation for more investment and spending.”
Recent data revealed that people are considering investment in manufacturing sector risky, referring to the slow growth rate of the economy. Also heavy sell-off by foreign investors in the domestic equity market is plunging the value of rupee consistently. Gold and silver is taking the confident platform of safe investment, pulling the prices up. The real estate and the automobile sectors, directly connected with growth rates, are also suffering.
The RBI annual report also informs that, “Gross tax collections fell short of the budgeted target in 2018-19 (Per Annum) by Rs. 1,910 billion largely due to a shortfall in GST collections by Rs. 1,623 billion and income tax collections by Rs. 563 billion. On the other hand, corporation tax and customs duty collections surpassed the budget targets by Rs. 426 billion and Rs. 54 billion, respectively. Consequently, gross tax collection in 2018-19 (PA) fell to 10.9% of the GDP from 11.2% a year ago.”
Coming to the current quarter, it’s even a bigger shock. In the first quarter of the FY 20, India counted its GDP at a 5% growth rate. RBI reports that the nominal GDP for the same quarter counted was also at a 16 year low of 7.9%. Additionally, the growth of GDP is sliding since 2015. The Monetary Policy Committee (MPC) projected a real GDP growth for 2019-20 at 6.9% in its August 2019 meeting. It is also a downslide that reviews how India may go even inferior to the baseline forecast.
In this economic condition, withdrawal of Rs. 1.76 lakh crore from the RBI is being considered as a back-up plan. In this prevailing low investment condition in addition to the banks’ slowing growth rate and NPA hitches, this amount is going to be the only hope for the Modi 2.0 government to revive the economy. The Indian finance department has denied disclosing where it plans to invest this amount but has already made headlines as it withdrew this large amount from the RBI, bearing testimony to the present economic crisis. This withdrawal surprisingly includes Rs. 1.23 trillion surplus for 2018-19 and Rs. 52637 crore excess provisions sanctioned by the Bimal Jalan Committee. Generally, the central government gets additional Rs. 86000 crore from the RBI on the budgeted Rs. 90000 crore. Pronab Sen, former chief statistician of India, sounded a word of caution, “Keeping the RBI at the rock-bottom level sparing no space for maneuvering is not a sensible idea.”