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LATEST NEWS UPDATES | Government's key agenda must be to accelerate growth -C Rangarajan

Government's key agenda must be to accelerate growth -C Rangarajan

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published Published on May 29, 2019   modified Modified on May 29, 2019
-The Hindu

Only a fast-growing economy can generate surpluses needed to create jobs and sustain social safety nets

Now that the general election is over, the time has come to pay serious attention to the economy. The national income numbers continue to be controversial. No serious policy decision can be taken with ambiguous numbers. Nevertheless, even with the new official numbers it is clear that growth is slowing down. As in the revised new base estimates, the growth rate in 2016-17 was 8.2%; in 2018-19 it was 7%. Accelerating economic growth must be on top of the agenda of the new government. It is only a fast growing economy that will generate the surpluses which are necessary to address many of our socio-economic problems and to provide social safety nets.

Decline in investment rate

For faster growth, what is critically needed is a higher investment rate. In current prices, the ratio of Gross Fixed Capital Formation to Gross Domestic Product has stayed low at 28.5% between 2015-16 and 2017-18. In 2018-19 it is estimated at 28.9%. In 2007-08, it was as high as 35.8%. In constant prices, the ratio, has, however, shown a smaller decline from the peak. It is true that for a time growth can come out of better utilisation of existing capacity. But for sustained growth, the ratio has to go up, and that too substantially.

There are several studies which indicate a fall in corporate investment. Every year the Reserve Bank of India (RBI) publishes a forecast of corporate investment. It uses the data made available by banks and other financial institutions on the phasing of capital expenditures of projects sanctioned by them. An article in the March 2019 issue of the RBI Bulletin says that in 2017-18, the capital expenditures of the corporate sector were estimated at Rs.1,487 billion. There has been a steady decline from Rs.2,050 billion in 2014-15. The industry-wise distribution of projects sanctioned by banks and other institutions in 2017-18 shows that the power sector accounted for 38.2% of the total expenditure. Pure manufacturing had only a small share. All these point to the urgent need to accelerate investment.

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The Hindu, 29 May, 2019, https://www.thehindu.com/opinion/lead/the-key-agenda-must-be-to-accelerate-growth/article27278419.ece?homepage=true


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