Future bleak for investment uptick

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India’s prolonged investment and savings slowdown has been unprecedented. The Economic Survey points out that even during previous times of economic crises, such as the balance of payments crisis in 1991, the country continued investing and saving.

The years before the 2008 global financial crisis saw a sustained rise in the investment cycle, with gross fixed capital formation rising from 26.5 percent in 2003 to 35.6 percent in 2007. The ratio of savings also rose from 29.2 percent in 2003 to 38.3 in 2007.

Since 2008, savings and investments have declined globally (see charts), with investments in India falling sharply. Is a revival now imminent?

The Economic Survey pours cold water over the claim that the investment cycle will automatically resume, and that India could move back to an 8 percent growth rate. “Notably, mean reversion, or some degree of automatic bounce-back, is absent so that the deeper the slowdown, the slower and shallower the recovery,” it says. The report also argues that the government needs to put policy prescriptions in place to incentivise investments.