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World Bank wary of low rate of private investment in India

Author: IANS/Thursday, March 15, 2018/Categories: Economy

World Bank wary of low rate of private investment in India

New Delhi - The World Bank said it was worrisome that the rate of private investment in India had remained low, despite all enabling factors including improvement in macroeconomic stability and increased public investment.

In its India Development Update report which takes stock of the Indian economy, the World Bank said the investment rate had declined and remains low "despite the fact that macroeconomic stability is much higher, public investment has picked up and its quality has improved". 

It added that business environment had also improved in the country and the global liquidity had continued to remain positive. 

Not only that, the Indian equity markets have also done well offering good valuations to the companies looking to raise money. "All these factors should have helped spur private investment, yet it has been enigmatically subdued," the report said.

Offering insights into the reason behind this contradiction, the World Bank report said the slow pace of investment growth could be due to deleveraging. 

"Indian businesses over invested and over leveraged during the boom years. Yet due to slow pace of resolution, business cannot deleverage quickly and start investing afresh."

There may also be sectoral constraints to investments in sectors such as construction, leather, infrastructure, telecom and energy sector, it added.

"Going forward, de-risking the private sector may be important, as it may be to ensure an environment of policy certainty. Understanding and relieving the generic, spatial or sector specific constraints to investment growth is important," the report said.

The World Bank, in its biannual flagship publication, also took note of the high balance sheet stress in the banking sector especially the non-performing assets crisis.

It said the genesis of the prevailing issue could be traced to the period of exuberance in bank credit growth during 2004-08, followed by the evergreening of loans in response to the crisis.

It said the new Insolvency and Bankruptcy Code (IBC) was an important step toward changing the credit culture but the policy would take time to be effective in cleaning the balance sheets and ultimately changing the credit discipline in the country.

The report added the IBC was unlikely to improve credit adequacy of banks on its own.

The World Bank also made a case for making Indian exports competitive in the global market. It said that despite an acceleration in export growth, India had "barely managed to keep pace" with it since the global financial crisis, reflected in its stagnant or even declining share of world exports.

"Significant improvement in the competitiveness of Indian firms is key to developing its role as a global exporter," it said.

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