Growth entails more jobs, boost in spending

Finance Minister Nirmala Sitharaman has never been so forthright before as she is now. It is usually the case that finance ministers are forced to speak hard facts even if they do not mean to. It is in one of those candid moments — and there have been quite a few in her post-Budget media interviews — that she told the Federation of Indian Chambers of Commerce and Industry (FICCI) national executive meeting on February 4, “Government alone, even if it brings bags full of money, cannot just meet the demand of the growing and aspirational India.”

She wants the private sector to invest. It has been a puzzle for the last six years as to why the right-wing Bharatiya Janata Party (BJP) with its natural affinity for market forces has not been able to enthuse private sector to play a more active role. For quite some time now, she has been displaying her ideological belligerence against socialism and has been vocal about how the BJP government respects wealth creators.

But she is aware of the contradiction in which the Modi government finds itself because Prime Minister Narendra Modi has been too keen to establish the reign of the State through digitisation, an unmistakable right-wing trait, which is quite different from that of the conservative political parties of the Anglo-Saxon polities like the UK, the US, Canada or Australia.

He wants to be seen as the patriarch rolling out welfare measures to rural women, farmers et al. That is why, she said in a recent interview that socialism did not have a copyright to welfare measures. Of course, the Modi government has a right to practise welfare economics and refuse to be tagged as socialist.

Prime Minister Modi, in his address recently in reply to the debate on the Motion of Thanks to the President’s Address, had lashed out at bureaucrats and questioned the rationality of them heading public sector enterprises, and he made out that the young people in this country had a right to be charting the economic course.

It was fuzzy logic at its best. He would not name the private sector but it was clear that he was targeting state socialism of the supposedly Congress era as the villain. It seemed a futile outburst after 30 years of economic reforms.

The problem lies elsewhere — private sector investment. The fact that the finance minister is making a direct appeal to the private sector to invest is a sign that private sector investment is not happening to the extent that it should. It is the details of private sector investment that offers some clues.

An article in the February 2020 bulletin of the Reserve Bank of India under the title, “Private corporate investment in 2019-20” prepared by Pronita P Saikia and RK Sinha gives the capex details of the projects and the credit raised from banks, financial institutions and other sources like external economic borrowings (ECBs), initial public offerings (IPOs) and others. The total borrowing for 988 projects in 2018-19 was Rs 2,53,705 crore from all sources, and in 2017-18, private sector investment for 955 projects was Rs 2,07,673 crore.

It turns out that 76.9 per cent of the projects and the funds raised were for new projects, and only 19.7 per cent was raised for expansion and modernisation. And among the new projects, a large share of the loans was for mega projects with an outlay of Rs 5,000 crore and more, and with a longer gestation period. In 2018-19, there were five mega projects compared to three in 2017-18. And there were 40 large projects with total costs between Rs 1,000 crore and Rs 5,000 crore.

The infrastructure sector accounted for 58.6 per cent of the aggregate funding in 2018-19, an improvement over 2017-18. But the pattern of private sector corporate investments shows a capital-intensive pattern. The question that is to be raised is whether the private sector investment is going into the right, productive channels?

Like farmers depending on staple cereals for their earnings through the minimum support price mechanisms, is the private investment stuck in infrastructure where assured returns serve as a safety belt? Is much of the private sector investment getting choked because of the averseness to risk?

The macroeconomic situation has been less than robust before Covid-19 struck at the beginning of 2020, according to the RBI, based on national accounts aggregates. The average growth rate between 2014-15 to 2018-19 rose to 7.5 per cent from the 6.7 per cent of 2008-09 to 2013-14, but at a decadal level it is much less. It stands at 6.9 per for 2011-19 compared to 6.8 during 2001-11.

India seems to be stuck somewhere in the middle between low and high growth orbits. Perhaps Indians need to spend more, and to do so, Indians need to earn more. How to make that happen is the challenge. And what the private sector can do to create the jobs and enhance the consumption of the ordinary people.

This cannot happen at the national level. It needs smaller scales like Tier-2 cities and towns and even the villages. It needs a different kind of thinking. It is the private sector that needs to create the market. The fast moving consumer goods (FMCG) sector could show the way. The private sector should knock at the untapped markets spread across the country. It is the small places and small markets that can create the buzz. The mega projects and the megalopolises cannot do the trick.

So, rhetorical appeals to private sector to invest will not help in meeting the growth challenge.