High inflation has replaced expectations of faster growth in global demand

- The flow of private investment is slow even before the pandemic and now

The situation has improved significantly in the last one year due to the slowdown in demand due to the corona epidemic and the restrictions imposed due to it. It has also raised hopes that private investment in the economy will improve and the recovery in growth will also strengthen. Talking about the Indian economy in recent years, even before the advent of the pandemic, it was struggling with the problem of lack of private investment. Gross fixed capital formation as a share of gross domestic product (GDP) has nowhere near reached the levels seen in the high growth years of the 2000s. But there was a significant improvement in this trend. Because its share in real GDP increased to 34.7 percent in the first quarter of 2022-23. which was 32.8 percent in the same quarter last year.Some hoped that this improvement was due to an increase in private demand. This is because when it comes to the share of final private consumption in GDP, it was also about 10 percent higher in the first quarter than the pre-pandemic quarter, although an intuitive explanation could be that this is a reaction to the decline in government spending as a share of GDP.

The mathematics of private demand is very important because firms do not make significant investment efforts until they see a return on demand in the economy. Furthermore, given the uncertainties ahead about the actual path of domestic demand, it is clear that global growth will also face several headwinds. Supply sector disruptions during the pandemic will have to be dealt with before the way finished goods are stockpiled. Many major trading blocs are still unable to import as they did before the pandemic. Furthermore, due to slower growth projections and rising inflation, there is a possibility that future global demand may not recover in time and may not reach the levels desired by Indian exporters. In such a situation where will companies get incentive for investment?

The government understands the importance of private investment to improve growth. He is also aware that government spending and investment cannot boost growth in the long run. Union Finance Minister Nirmala Sitharaman recently asked businessmen why private sector investment is low even after introducing various incentive schemes including corporate tax cuts and production linked incentive schemes. Part of the answer to this question is, of course, uncertainty. However, capital utilization in the manufacturing sector is now better than ever. It crossed the 75 percent mark in the last quarter of 2021-22, which gives rise to hope. The balance sheets of banks and corporate houses have also seen significant improvement in the last few quarters. In the medium to long term, an environment conducive to recovery in private investment is also emerging. The projected level of sustainable growth in the domestic and global economy will now be the most important factor. The government should now try to create an environment of policy-making.