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The Confederation of Indian Industry (CII) has pegged the requirement for investment at Rs 280 lakh crore ($4.7 trillion) for five years beginning 2014-15 to make the economy grow by seven per cent a year on an average.
The requirement is double the Rs 139 lakh crore ($2.9 trillion) investments made in the previous five years. The economy grew 6.7 per cent a year on an average in the previous five years. The estimates, given in a CII study titled 'Investment requirements in India: 2014/15 to 2018/19', are based on an assumption of a incremental capital-output ratio of 5.
At this, CII expects total investment requirement (at 2004-05 prices) to be Rs 126 lakh crore ($2.1 trillion), higher than Rs 100 lakh crore ($2.08 trillion) investments in the previous five years. The exchange rate is taken as Rs 60 to a dollar for five years, starting the current financial year.
Converting it into current prices, CII arrived at the figure of Rs 280 lakh crore. The study has assumed inflation (based on the deflator used to calculate gross domestic product) to average six per cent a year in 2014-15 to 2018-19.
In its 12th five-year Plan document, the Planning Commission has estimated the investment requirement at current prices during the Plan period (2012-13 to 2016-17) to be Rs 208 lakh crore ($3.5 trillion).
CII expects industrial growth to pick up to an annual average of at least 6.3 per cent in the coming five years. Correspondingly, it expects agriculture and services to register yearly average growth of four per cent and 7.95 per cent, respectively. Sector-wise shares in capital formation in the next five years are estimated at eight per cent for agriculture, 47 per cent for industry and 45 per cent for services. The corresponding figures were eight per cent, 42 per cent and 50 per cent, respectively, in the earlier five years.
For industry, a cumulative investment of Rs 146 lakh crore is required, of which Rs 98 lakh crore is to be invested in manufacturing alone. "The sector needs to accelerate its growth and create mass employment to absorb the rapidly growing population of job seekers, either displaced from agriculture or the result of growing population," the study said.
High growth of manufacturing is also seen as critical for sustaining elevated growth of the services sector. "Having said that, there is also a vast unexploited potential in areas such as health, education, trade, financial services and tourism, where appropriate policy interventions can make a big difference," said CII Director-General Chandrajit Banerjee.
CII expects infrastructure investment to go up from Rs 24 lakh crore ($500 billion) in the XI Plan period to Rs 64.3 lakh crore ($ 1,071 billion) during 2014/15-2018/19. The figure is comparable to the Planning Commission's estimate of around $1 trillion during the 12th Plan period.
Investment in infrastructure is estimated to average 7.7 per cent of GDP over the next five years, up from 7.2 per cent during the XI Plan period.
The CII study suggests around 40 per cent of the total investment in infrastructure should come from the private sector, which is lower than the 48 per cent prescribed by the Planning Commission for the 12th Plan.
