Gross Capital Formation in India: Latest Information

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The World Bank Group in its Report ‘South Asia Economic Focus Fall 2016’ titled ‘Investment Reality Check’ has indicated that in terms of annual growth rates, the Gross Capital Formation for India has not shown a steady trend.

According to the World Bank Group, the drivers of this performance are the following global and domestic factors:-

Global factors:

(i) excess capacity globally as growth post the Financial crisis has disappointed; and

(ii) increased uncertainty globally,especially with respect to the global trade outlook.

Domestic factors:

(i) deleveraging of Indian corporate,especially in the infrastructure and transport sectors;

(ii) delayed impact of structural reforms such as improvement of ease of doing business,implementation of GST, and crowding-in by public investments; and

(iii) difficulty in land acquisition.

The Government has taken various initiatives to strengthen investment and economic growth which, inter alia, include; fillip to manufacturing and infrastructure through fiscal incentives and concrete measures for transport, power, and other urban and rural infrastructure; reforms and liberalization of foreign direct investment in major sectors; measures to debottleneck the supply of key raw materials etc.

Initiatives like Digital India, Make in India and Start-up India have been launched to boost entrepreneurship.

The efforts to simplify business and investment-related clearances and fast-track governance reforms have helped India to improve its status as an investment destination. In addition, many other initiatives like launching of Micro Units Development and Refinance Agency Ltd. and “Stand up India Scheme” to promote entrepreneurship among SC/ST and women entrepreneurs have been also launched.

The implementation of scheme for Enhancement of Competitiveness in the Indian Capital Goods Sector that aims to make Indian capital goods industry globally competitive will help reviving the capital goods sector, and thereby investment.

The National Policy on Capital Goods Sector, approved by the Cabinet in May 2016, that envisages making India one of the top capital goods producing nations of the world by increasing production, raising exports and improving technology to advanced levels is also likely to strengthen domestic investment.

The Government has also announced various measures in the Budget 2017-18 to promote growth and investment (Gross Capital Formation) which, inter alia, include push to infrastructure development by giving infrastructure status to affordable housing, higher allocation to highway construction, focus on coastal connectivity and taking up second phase of Solar Park.

The other measures that can have a positive bearing on investment include: lower income tax for companies with annual turnover up to Rs 50 crore; allowing carry-forward of MAT credit up to a period of 15 years instead of 10 years at present; further measures to improve the ease of doing business; and, major push to digital economy.

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