15 September , 2022 Fdiindia
What Are The Reasons Behind Indian Businesses Being Investment Shy?
The unshakeable belief that foreign investors seem to be showing in the Indian Economy and its future has pushed the Union Finance Mister Nirmala Sitaraman to question the hesitance Indian Firms are showcasing towards Investments in the nation. A question ardently based on the circumstances at hand, beggaring the belief of Indian Firms seeking investment opportunities.
Investments by Indian Industries have slowed down, with the growth rate of gross block formation of Indian companies falling to single digits in the last few years as the pandemic hit the market demand. In pursuit of understanding such faltering belief in Indian investments, Economists have nailed out a few reasons why Indian industries are hesitant to invest in the country's future.
One of the prime reasons why Indian Companies are shying away from investment remains to be a diffident belief in the durability of the demand recovery. And the other main reason remains to be the belief that the demand in the market is a volatile entity and might falter due to the paramount levels of Retail Price Inflation, which has reached above the Reserve Bank Of India's Tolerance level of 6% for the 6th consecutive month.
Private Financial consumption expenditure leads up to about 13.5% in the first quarter of FY23, which is about 10% higher than the corresponding pre-COVID times. But as reported above, the rising Inflation and its volatile momentum have kept Indian Investors at bay.
According to Ranen Banerjee, there have been a multiplicity of causes behind the hesitance; the pre-COVID slowdown. The COVID Shock, as well as the Tough monetary stances, are taken up by Central Banks. ICRA Chief Economist Aditi Nayar voiced that high commodity prices, geopolitical uncertainties, and uneven consumer demand were the likely reasons for India Inc to defer its capital expenditure plans despite healthy capacity utilization in the fourth quarter of FY22.
The hopes of Government capital expenditure to bring in momentum in private investments, which would, in turn, give Economic Growth the push it needs, has been regarded as a way out of the current slump we find ourselves in. But even after prominent central outlays, the private sector has remained Investment Shy. So the ball now rests in the Governments court; it is to be witnessed what government does next to bring an impetus to hesitant Indian Inventors.
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