India must invest $6.6 trillion to grow GDP at 10%\, says industry that won’t loosen its purse strings

• $6.6 trillion has to be invested into economy to hit the set target.
  
• $1.3 trillion has to be spent into the infrastructure sector.
  
• India has the potential to grow at 10% from 7% in the next five years.
  
• The recommendations are from the Confederation of Indian Industry (CII).

India may need as much as $6.6 trillion to be invested into the economy if it wants to grow at the rate of 10%, according to a report from the Confederation of Indian Industry (CII) released ahead of the upcoming budget on July 5 -- the first from the Narendra Modi government that is into its second term. That is twice as much as the amount which was invested in the last five years.

“Of the total investment, the largest share of 60% is desired to be in the services sector, followed by 37% in industry and 3% in agriculture,” the report said prodding Nirmala Sitharaman who would be presenting her first budget in her new role as the country’s Finance Minister.

However, the industry insists that a large part of the said investment has to come from government’s pockets.

An impetus has to be given by the government to the infrastructure sector, which is key to accelerating the growth momentum in the entire economy. As much as $1.3 trillion has to be spent into the infrastructure sector in the next five years, to turn India into a high growth economy.


“In the current milieu of sluggish investment scenario, the public sector should continue spending a larger share than the private sector on infrastructure. At least 55% of the investment in infrastructure should be undertaken by the public sector,” CII said.


Here is a table of the percentage of the aforementioned amount that each sector should receive.





Taxes or investments
With few banks willing to pass on the advantage of three base rate cuts by the Reserve Bank of India (RBI), private investment will still be tough to come by.


According to IBEF, in 2017-18, private equity and venture capital investments were at $20.5 billion. It was down by $4.4 billion from the year before. The capex by BSE 200 companies however had remained constant at $54.36 billion.


The government itself will have to take on the onus of investments across sectors, and hope that the effect trickles down and brings in the much-needed confidence into the economy. Much like in the first term of Narendra Modi.


Modi is now caught between a rock and a hard place. To be able to make larger investments, it would have to overcome the fact that its tax collections have reduced by 5%. On the other hand, the industry wants tax burden lowered, as they are facing slowdown. It will leave them with less room to make up for the revenue deficit. Which way with Nirmala Sitharaman go, is left to be seen in the Budget.


The starting line

However, a research paper published in Harvard University by India’s former chief economic adviser Arvind Subramanian says that India’s current real GDP growth is inflated by 2.5%.

This was between the years 2011-12 to 2016-17 when the country officially said that it was growing at 7%. It was actually growing at 4.5%, Subramanian says. If the charge of inflated numbers are taken into account, Indian government has to invest even more to reach 10% target.