The Narendra Modi government's hope of reviving investment in the economy seems to be getting nowhere, going by the numbers for the last year (2014-15). What is worse, according to current indications, there will not be much of a revival in the current year, too. The most depressing numbers come from the public sector, which is directly in the hands of the government and where its directives can be most immediately implemented. Capital expenditure (gross block plus capital works in progress) in 36 listed public sector undertakings (leaving aside banking which faces issues of its own) fell by 23.5 per cent in 2014-15 after actually rising in the previous financial year by a little more than an equal measure (27.8 per cent).
What is serious is that this is not an isolated happening in the public sector as the trend from the private sector is one of a continuous fall. Capital expenditure by it fell by 27 per cent (that is more than in the listed public sector units) last year - the fourth straight year of fall. Right now the current year offers no hope for revival as growth in non-food credit in the first quarter of the year has been sluggish and the rate of growth of credit to infrastructure has halved. As if to complete the dismal picture, there has been a sharp fall (as much as 80 per cent) in outward investment by Indian companies last year over the previous year. This has come at the head of an erratic downward trend over the previous few years.
The villain of the piece is obviously a lack of sufficient demand across the world, of which India is a part. In such a scenario, Indian industry is naturally plagued by low capacity utilisation, which has found reflection in disappointing profits. That being the reality on the ground, firms, either in the public or the private sector, can hardly be expected to step up investment. The problem with global demand has found reflection in poor commodity prices, most dramatically reflected in the price of oil. It is, therefore, not surprising that capital expenditure by state-controlled crude oil and natural gas producing companies (they make up the bulk of the sector) fell last year by a massive 50 per cent. All this underlines the fact that India's economic performance goes up or down in line with what is happening in the rest of the world. The first United Progressive Alliance government did well as its life coincided with the global boom and the second did comparatively poorly as its life coincided with the post-2008 bust. The current poor Indian performance in investment and overall business sentiment are in line with global indicators.
The puzzle in all this is the buoyant recent Indian GDP figures which seem to be an outlier in the overall depressed scenario. While time and a more detailed analysis should resolve that puzzle, it seems clear that the Indian economy is now so effectively integrated with the global economy that the ability of individual governments to influence it in a desired direction may well be quite limited. This should make both the major political formations in the country somewhat humble. Nevertheless, the government should make a serious attempt at making sense of the current pattern of falling investments that is constraining growth so that the right steps are taken to arrest the disturbing trend of a falling capital spend by central public sector undertakings.
