RBI sees clear signs of investment revival

The Reserve Bank of India (RBI) has said that there is growing evidence of an upturn in investment activity in India. According to RBI’s latest paper entitled “India’s Investment Cycle: An Empirical Investigation”, this revival in the investment cycle is expected to last up to 2022-23 when the investment rate is estimated to rise up to 33 per cent of the GDP from the current level of 31 per cent.

The paper, however, opines that the revival will require policy efforts by the government on multiple fronts, including further improvement in ease of doing business, expediting resolution of stressed assets, resolution of NPA problem and speeding up implementation of stalled projects, among others.

According to the paper, the investment rate began to turn around in 2016-17, which was reflected in many other high-frequency indicators such as industrial production, which had picked up since the second half of 2017-18 as indicated by the sharp increase in production of capital goods.

The growth in credit of commercial banks, which had decelerated from 21.3 per cent in March 2011 to just 4.5 per cent in February 2017, had gradually picked up since Q3 of FY2017-18. “The recent improvement in credit growth is also becoming increasingly broad-based. Credit flows to industry, which contracted during October 2016 to October 2017, has turned positive since November 2017,” the paper stated.

The capacity utilisation in the manufacturing sector, which plays a significant role in promoting fresh investment activity, has also picked up since the second half of FY2017-18.

The sharp acceleration in real GDP growth in the first quarter of FY2018-19 and the acceleration in credit growth of banks augur well for sustaining the investment activity going forward, the paper said.

India has already overtaken UK and France to grab the sixth place among the global economies. The pick-up in investment activity India will catapult India higher up in the order of world economies.