Drift and delay

PMEAC points to the problem of stalled investment projects, and government's tardy response

The chairman of the prime minister's economic advisory council (PMEAC) has projected a higher GDP growth in the current fiscal year, at 6.4 per cent. The PMEAC report points out that this is an achievable growth rate rather than a forecast. It is the growth that can be achieved if the government puts in place a set of policies and administrative measures that are meant to create a favourable and enabling environment. This assessment is correct in underlining that while the Indian economy has the potential to grow, it will continue to disappoint if the government does not act.

The government must seriously examine the policy recommendations of the PMEAC. C. Rangarajan points to stalled investment projects as the main reason for the slowdown. While fiscal and monetary policies play a role in lower growth, the report indicates that the government failed to understand the extent to which stalled projects, in which large amounts of capital are stuck, would impact GDP growth. While the investment to GDP ratio remains high at 35 per cent, GDP has fallen as investment is less effective due to the policy environment. Rangarajan warns that if the Cabinet Committee on Investment (CCI) is not able to solve the problem of blocked projects, growth would be even lower.

The report comes at a time when the CCI has cleared oil and power projects. Hopefully, it will continue to play a role in pushing investment forward. However, since the time lag with which this has been put in place has been long, there is a risk of worsening balance sheets of corporations and banks making it far more difficult for the economy to pull itself out of its predicament. As Rangarajan notes, everyone was aware of the project delays, but nothing was done about it. While addressing the issue of project clearances, therefore, the government must simultaneously set up mechanisms to address the problems that created these delays. Understanding the basic causes of projects getting stalled, and putting in place the policy options needed for this not to happen again, is as important as clearing projects in restoring confidence in investors.

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