It is very important to increase the investment flow for the growth of the economy

- Global dynamics will impact the investment growth plan in India despite favorable domestic factors

One of the key policy challenges in India is to boost economic activity and accelerate reforms. In this regard, however, much depends on improvement in the investment climate, which has been sluggish for some time now. For this, the government is promoting public investment so that private investment can be found, but this has not been very successful. While related factors such as bank and corporate balance sheets are improving, investment may take some time to see improvement.

Even before the pandemic, most countries in the developing world were grappling with problems of low growth in investment. According to a research study published in the World Bank's latest 'Global Economic Prospects' report, real investment growth in developing countries has declined from around 11 per cent in 2010 to 3.4 per cent in 2019. With the exception of China, there was a sharper slowdown in investment growth. It decreased from 9 percent in 2010 to 0.9 percent in 2019.

An increase in real investment actually plays an important role in maintaining long-term and sustainable economic growth by raising productivity and raising incomes. Less investment means less progress on the technology front in developing economies, which will also affect potential growth. However, developing economies do not consist of the same countries. Many commodity-exporting countries suffered losses due to low prices in the years following the global financial crisis, indicating that the state of the global economy is worrying.

The Covid-19 pandemic has affected economic activities across the globe and has had a major impact on investment demand. It is estimated that nearly 70 percent of emerging markets and developing economies will suffer from an investment shortfall in 2023. The post-pandemic recovery has been much slower than in the early years after the global financial crisis.

Investment depends on overall economic activity. Slower growth in the global economy and a possible slowdown in large parts of the developed world will further delay the recovery. The US Or a 1 percent drop in output growth in the euro area could reduce overall investment growth in developing economies by 2 percent.

Although some local factors are favourable, investment growth prospects in India will be influenced by global economic conditions. Global uncertainty and slowing manufacturing growth will not encourage Indian companies to invest aggressively even if capacity utilization improves. Fears of delayed investment recovery will further complicate policy makers' choices in the upcoming Union Budget. This will mean that the government will have to continue investing, even as the fiscal deficit needs to be brought down as quickly as possible. It is also to be noted here that the expected reduction in the inflation rate may have an impact on the revenue collection in the next financial year as well. In such a scenario, the challenge will be to manage resources through revenue savings to keep up capital expenditure and not fall behind in reducing the fiscal deficit.