Explained | The FM’s call for industrial investment

Source: The post is based on the article “Explained | The FM’s call for industrial investment” published in The Hindu on 27th October 2022

What is the News?

The Finance Minister has recently asked captains of the industry what was holding them back from investing in manufacturing. 

Why did the Finance Minister say about industrial investment?

The Finance Minister said that she could not see any investments happening at the pace she would have liked.

In the hope of revitalizing private investment, the government had in September 2019 cut the tax rate for domestic companies from 30% to 22% if they stopped availing of any other tax SOP (standard operating procedure).

Why there is a slow pace in industrial investment?

According to experts, capital expenditure by the government is a precursor to private investment, but it would take a sustained trend in public spending, for about half a decade at least, to help kindle enthusiasm in the private sector. 

While the government’s intent to spend aggressively on infrastructure in its Budget for this fiscal is encouraging. But this cycle should have started a few years ago.

What is consumer sentiment?

Private companies invest when they are able to estimate profits, and that comes from demand.

The Centre for Monitoring Indian Economy’s (CMIE) consumer sentiment index is still below pre-pandemic levels but is far higher than what was seen 12-18 months ago.

Other Terms mentioned in the article

Gross Fixed Capital Formation(GFCF): As per RBI, Gross capital formation refers to the ‘aggregate of gross additions to fixed assets (that is fixed capital formation) plus change in stocks during the counting period.’Fixed asset refers to the construction, machinery and equipment.

Private final consumption expenditure(PFCE): It is defined as the expenditure incurred by the resident households and non-profit institutions serving households(NPISH) on the final consumption of goods and services whether made within or outside the economic territory.

Index of Industrial Production(IIP)