PSUs' investments steadier than private sector

Private corporate investment has raced or plunged with the general trend, unlike the steady trot in its public counterpart

The fluctuation in private corporate investment since the year 2000 has been more than that in public investment, data shows.

Recently, the government’s mid-year economic review made a case for reviving public investment as an engine for economic growth. Chief Economic Advisor Arvind Subramanian had said: “In the medium term perspective, as growth slows, one way to revive it will be through public investment. The possibility of public investment being an engine of growth should be given more serious consideration.”

An analysis of gross capital formation (GCF) in the two sectors since 1999-2000 has brought out some clear trends. Both public and private investment grew with the economy during the boom years and slowed after the global financial crisis, which began in late 2008. However, the fluctuation in private investment was distinctly more pronounced.

In 2004-05, private corporate GCF was 78 per cent higher than in 2003-04, the highest growth since 1999-2000. Public GCF also registered its highest growth, up 37.8 per cent over a year before. The economy grew 7.5 per cent that year.

 

Between 2005-06 and 2007-08, private investment rode on and burnished the boom years. In absolute terms for those three financial years, at Rs 5 lakh crore, Rs 6.24 lakh crore, and Rs 8.63 lakh crore, it was almost the double public investment at Rs 2.93 lakh crore, Rs 3.56 lakh crore, and Rs 4.42 lakh crore, respectively.

However, in 2008-09, when growth in gross domestic product was 6.7 per cent, compared to 9.3 per cent the year before, private investment dropped 26.3 per cent year-on-year. Public investment, in a way, pulled India through while the rest of the world was slipping into a recession. It rose 20.3 per cent for the year.

Since then, between 2009-10 and 2012-13, public investment grew at an annual 11.5 per cent, 10.7 per cent, six per cent, and 18 per cent, respectively. Private investment for that period grew 23.5 per cent, 27 per cent, minus 8.5 per cent and 1.3 per cent, respectively.

In absolute terms, the previous occasion when public GCF outstripped private corporate GCF was in 2002-03. However, the former has been steadier and since 2011-12, been growing at a much faster trot than the latter.