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Private investment a shrinking slice of India’s GDP pie since 2012. It’s a vote of no confidence



New Delhi: Private sector investment in India has been falling as a proportion of Gross Domestic Product (GDP) since 2012, and it’s not due to the conventional reasons of consumer demand, capacity utilisation, access to credit, and corporate profitability, an analysis by ThePrint has shown.

The problem instead seems to be a more unquantifiable one — a general lack of confidence in the way the Indian economy is being managed, economists and businesspeople say.

Analysis of data from the latest Economic Survey of 2022-23 shows that private investment has exceeded investment by the government as a percentage of GDP since 1950 (except for a brief period in the 1980s).

This incidentally belies the notion that it is public sector investment that has been the mainstay of India’s economic growth, despite the huge fanfare around the Modi government’s large-scale infrastructure push.


The data also shows that, since 2012, private sector investment as a percentage of GDP has been falling.

Broadly, there are five determinants of private sector investment — consumer demand, access to credit, corporate profitability, the level of capacity utilisation, and overall business confidence. The data shows that the first four factors, while measurable, haven’t had a particularly strong bearing on private investment in India.

“The main problem, according to me, is not so much a lack of confidence in the economy, but a lack of confidence in how the economy is being managed and how companies are being monitored,” Pronab Sen, former chief statistician of India, told ThePrint.

ThePrint reached the office of the commerce secretary, ministry of commerce, for comment on why they thought private investment was low, but did not receive a response till the time of publication of this report.

Private sector drives investment in India

The data shows that private sector investment as a share of GDP rose steadily since 1991 — spurred by the economic reforms implemented then — to a peak of 27.5 per cent in 2007-08. Even the Global Financial Crisis didn’t seem to have a lasting impact on investor appetite, with private sector investment recovering from a brief dip post-crisis to 27 per cent in 2011-12.

It is since then, however, that private sector investment as a share of GDP has been steadily falling. It fell to 21.3 per cent by 2015-16. By 2020-21, the latest period for which the Economic Survey has disaggregated data for the public and private sector, private sector investment as a percentage of GDP had fallen to 19.6 per cent.

Various private databases have shown that while private sector investment has increased more recently in absolute terms, it has nevertheless remained low as a percentage of GDP.

Data from investment monitoring firm Projects Today shared with The Hindu shows that private investment hit an “all-time high” of Rs 10.5 lakh crore in the January-March 2023 quarter. However, when looked at as a percentage of GDP, this works out to just about 15 per cent of GDP.

Consumer spending doesn’t impact private investment 

The conventional belief is that private sector investment is driven by demand, whether domestic or from abroad, in the form of exports.

“Private sector investment is driven by demand factors,” D.K. Pant, chief economist at India Ratings, told ThePrint. “If there is low demand, and capacity utilisation is low, then why will companies invest in more capacity? Similarly, if the export situation is sluggish, then demand from there as well will be low, and companies will not invest in new capacity.”

The data for India, however, shows that this doesn’t seem to be the case. Private Final Consumption Expenditure (PFCE), which is the amount households spend on consumption, has been falling as a percentage of GDP since 1950. PFCE as a percentage of GDP fell steadily to 55 per cent by 2010-11 from 89 per cent in 1950-51.

However, at the same time, private investment as a percentage of GDP rose to 25 per cent in 2010-11 from 8.8 per cent in 1950-51.

To further highlight the delinking of consumption expenditure and private investment, the next few years saw consumption expenditure rebound somewhat to 61 per cent by 2019, but this was the period when private investment was falling.

Further, although the government says that India’s exports are “projected to scale new heights”, data analysis shows that there does not seem to be a correlation between exports demand and private sector investment in India.

The analysis does, however, show that the level of capacity utilisation in the economy has a bearing on whether private sector investments happen or not. Capacity utilisation is basically a measure of the extent to which the installed capacity in a company or economy is being utilised to produce the output.

The higher the capacity utilisation, the more likely the company will invest in fresh capacity. If capacity utilisation is low, companies won’t invest in new capacity because what they have is more than enough to meet current demand.

The data shows that private investment as a percentage of GDP follows the level of capacity utilisation quite closely. When capacity utilisation is rising, private investment picks up. When capacity utilisation falls, so does private investment.

Another factor about capacity utilisation that is important to note is that it is an indication of not just current demand, but also a company’s confidence in future demand.

“If current capacity is more than enough to cater to current demand, then of course a company will not invest,” a former CEO of a large multi-thousand-crore consumer appliance company told ThePrint on the condition of anonymity. “However, a company will also invest in creating new capacity if it expects future demand to be strong, or if business conditions are positive in the country.”

“However, that is not the case right now,” he further explained. “Neither is there confidence that near future demand will be strong enough for new capacity to be needed, nor is there confidence in the way the economy is being managed right now in key business-oriented areas.”

Bank credit has no link with private investment

A common refrain when it comes to private sector investment is that access to credit is what drives it. That is, even if the private sector is willing to invest, if there isn’t enough credit available, then it can’t borrow enough to make those investments.

The latest Economic Survey has talked about how a “well-capitalised banking system with a low NPA (Non-Performing Asset) ratio and more robust corporate sector fundamentals will continue to enhance the flow of bank credit into productive investment opportunities, notwithstanding the rising interest rates”.

In other words, banks are in good health and companies are doing well enough, and so bank credit will increasingly fund private investment.

Analysis of the data shows that the surge in bank credit to the private sector as a percentage of GDP in the 2003 to 2008 period, from 31.6 per cent to 49.5 per cent in 2008-09, was largely accompanied by a growth in private investment as a percentage of GDP from 21.3 per cent to 27.5 per cent in 2007 — its highest ever level.

Thereafter, however, there’s been a disconnect between the two metrics. While bank credit to the private sector has increased, albeit at a marginal rate, private sector investment has dipped.

It thus seems clear that past data, at least, doesn’t show a strong link between bank credit to the private sector and investment behaviour.

The final measurable factor — of corporate profitability — also shows that it is not a major determinant of private sector investment. That is, while it is obvious that companies will not invest if they are in losses, it is not obvious that they will invest if they are in profit.

“Listed corporate profits (measured by profit after taxes, PAT) have been stable at 4.0-4.5 per cent of GDP during the past nine quarters,” a research note by Motilal Oswal Financial Services published in January 2023 said. “It has almost doubled from the pre-Covid period (FY18-FY20) average of 2.1 per cent of GDP.”

Here, too, Sen cautioned that the data could be partially misleading.

He explained that, since 2020, larger companies have been capturing the market shares of smaller companies that shut down due to the financial stresses of the pandemic. This is the reason behind their increasing profitability.

He also added that corporate profitability only looks at a part of the economy, while the profitability of about 45 per cent of the economy — informal sector businesses — is not being measured.

Tax, labour uncertainty & need for reforms 

A company looking to invest requires certain things to be set, the former CEO mentioned earlier said. These include tax rules and labour laws.

“However, what we have seen is that the government promised that labour laws would be reformed, but nothing has changed on the ground,” he lamented. “Even when it comes to tax rules, a company wants tax rules to remain unchanged for at least a decade if it is going to invest. But this is not happening here. Here, they change the rules every few years, which leads to uncertainty.”

This lack of confidence has been noticed by international bodies like the World Bank as well. During the release of the World Bank’s latest India Development Update earlier this month, the body’s country director, Auguste Tano Kouame, said that government investment was “not enough” for confidence in the economy to grow.

“This will not solve the long-term issue of investment unless confidence grows,” he explained. “And confidence will grow, but to accelerate the growth of confidence, public investment is not enough. You need deeper reforms to make the private sector invest not just when it is hugely profitable for them, or not just when they have deep pockets.”

“You want the shallow-pocketed private sector to also invest and you want small firms to invest so they can grow,” he said. “There are a number of reforms that are needed for that.”

Sen added that “constant raids and harassment” by agencies like the Income Tax Department, Central Bureau of Investigation, and the Enforcement Directorate have significantly eroded the confidence of companies looking to do business in India.

(Edited by Nida Fatima Siddiqui)



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Downtown decay: Greater investment needed to reverse decline



In Part 3 of its Downtown Decay series, CTV News Toronto examines the path forward for the city’s slumping core—and what can be done to reverse the troubling trend.

It is lunch hour in Toronto’s core, and the Front Street patio tables are set. It’s midweek, it’s May, and the skies are clear—but the office crowd is scarce, and the chairs sit empty.

It’s a tell-tale sign that fewer people are downtown these days, with plenty of reasons to avoid the area.

“Transportation has been a hot mess,” said Jay Daye, who lives downtown. “It has been a struggle to get around.”


“I have never seen this much construction at a single time,” said Akash Thomas, who moved here from India three years ago.

Improving the commute into the core, and the ease with which people can move around within it, is key to revitalizing a slumping city centre, said Matti Siemiatycki, director of the Infrastructure Institute at the University of Toronto’s School of Cities.

A ‘for sale’ sign in the window of a commercial building in downtown Toronto. (CTV News Toronto)

“It’s just like a litany of transportation challenges in that area, to the point where politicians are in some cases saying ‘Don’t come into downtown,’ which is the opposite of what we need right now,” he said.

“We’re talking about a downtown core that is struggling, and needs huge numbers of people to come in and out, and be able to do that easily.”

With activity levels at just 47 per cent of what they were in the core pre-pandemic, the data suggests a downtown decline spurred by a lockdown-led drop in the nine-to-five office crowd. But with hybrid and remote work here to stay in at least some capacity, some experts suggest reorganizing the role of Toronto’s core in the city’s economy.

“If you’re not able to attract people to work, attract people for amenities,” said William Strange, who teaches urban economics at the University of Toronto. “The stronger are the amenities, the happier people are going to be to go into their office anyway.”

“What I see is a huge opportunity for downtown Toronto to remake itself,” Karen Chapple, director of the University of Toronto’s School of Cities, told CTV News Toronto.

The key, she said, would be to reinvent the area as a mixed-use community, a model other urban centres have demonstrated to be successful.

“What I just hope, though, as we’re attracting sectors back, is that they are not nine-to-five sectors, because that’s what killed some of these downtowns.”

People passing by an empty patio on a sunny day in downtown Toronto. (CTV News Toronto)

The revitalization of the core will be a critical challenge for the city’s next mayor, Siemiatycki said, who warned service cuts could worsen an already-spiralling problem.

But investment won’t be possible without a rethink of the city’s fiscal framework, according to Matt Elliott, publisher of City Hall Watcher.

“If you look at the city’s budget hole and you say, ‘We’re just going to keep doing what we’re doing,’ and you’re not going to have a real plan to fill that budget hole, that gets into some really dicey territory,” Elliott said. “Because that’s when you start looking at really deep cuts.”

It’s not ideology, he said—it’s math.

“I don’t think we’ve realized that we’ve fallen down this ladder in terms of our prosperity,” Giles Gherson, incoming Toronto Region Board of Trade president, told CTV News Toronto.

Gherson warned that without a new financial deal for the city, which heavily supports services that should be the responsibility of Ottawa and the province, Toronto’s downtown would fall further behind.

“We’re poor,” he said. “We’re a poorer place than we used to be.”

The core, he argued, is in need of a correction, if the city is to salvage its productivity, maintain job growth, and remain competitive globally.

“We haven’t been paying attention,” he said. “We’ve been sleeping, and it’s falling off. So that’s what we need to fix—and that’s a big deal.”



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FTX: Singapore state fund Temasek cuts pay after failed investment – BBC



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Singapore state-owned investment fund Temasek Holdings says it has cut the pay of staff responsible for its investment in cryptocurrency exchange FTX, which collapsed last year.

In November, the fund wrote off all of the $275m (£222.8m) it invested in FTX.

Prosecutors have accused FTX’s former chief executive Sam Bankman-Fried of orchestrating an “epic” fraud which may cost investors billions of dollars.


Mr Bankman-Fried has pleaded not guilty to the charges.

“The investment team and senior management, who are ultimately responsible for the investment decisions made, took collective accountability and had their compensation reduced,” Temasek said in a statement on Monday.

The sovereign wealth fund also said it was “disappointed with the outcome of our investment, and the negative impact on our reputation.”

Temasek did not indicate how much salaries were reduced by.

It had invested $210m and then another $65m in FTX in two funding rounds between October 2021 and January 2022.

Last year, the state-owned fund said that before making those investments it had spent eight months evaluating the cryptocurrency exchange. This included the review of an audited financial statement “which showed it to be profitable.”

As of March 2022, Temasek was worth more than S$403bn ($298.1bn; £241.3bn), so the money it had put into the cryptocurrency platform accounted for a small percentage of its investments.

However, Singapore’s deputy prime minister Lawrence Wong said in December that Temasek’s losses in FTX had caused damage to the fund’s reputation.

“The fact that other leading global institutional investors like BlackRock and Sequoia Capital also invested in FTX does not mitigate this,” added Mr Wong, who is also the country’s finance minister.

Sovereign wealth funds are like a savings account for a country, and they typically invest in shares, currencies, property or other assets.

FTX, which a year ago was valued at $32bn, filed for bankruptcy protection in November. It has been estimated that $8bn of customer’s funds was missing.

Mr Bankman-Fried, who co-founded FTX in 2019, was one of the most high-profile figures in the cryptocurrency industry, known for his political ties, celebrity endorsements and bailouts of other struggling firms.

US federal prosecutors have accused Mr Bankman-Fried of stealing billions of dollars from FTX users to pay debts at his other firm, Alameda Research, and to make other investments.

In December, prosecutors announced eight criminal charges against Mr Bankman-Fried, including wire fraud, money laundering and campaign finance violations. Another five charges were levied against him in March. Financial regulators have also brought claims against Mr Bankman-Fried.

FTX co-founder Gary Wang and Caroline Ellison, the former head of Alameda, have also been charged over their alleged roles in the company’s collapse.

Mr Bankman-Fried was arrested in December in the Bahamas, where he lived and FTX was based.

In an interview with BBC News just days before his arrest, he said: “I didn’t knowingly commit fraud. I don’t think I committed fraud. I didn’t want any of this to happen. I was certainly not nearly as competent as I thought I was.”

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Singapore’s Temasek cuts compensation for staff responsible for FTX investment



May 29 (Reuters) – Singapore state investor Temasek Holdings (TEM.UL) said on Monday it had cut compensation for the team that recommended its investment in the now-bankrupt FTX cryptocurrency exchange, as well as for its senior management team.

The move comes around six months after Temasek initiated an internal review of its investment in FTX, which resulted in a writedown of $275 million.

“Although there was no misconduct by the investment team in reaching their investment recommendation, the investment team and senior management, who are ultimately responsible for investment decisions made, took collective accountability and had their compensation reduced,” Temasek Chairman Lim Boon Heng said in a statement posted on Temasek’s website on Monday.

Temasek did not detail the amount of compensation cut.


Temasek had said its cost of investment in FTX was 0.09% of its net portfolio value of S$403 billion ($304 billion) as of March 31, 2022, and that it currently had no direct exposure in cryptocurrencies.

Temasek also said last year it had conducted “extensive due diligence” on FTX, with its audited financial statement then “showed it to be profitable”.

FTX’s other backers such as SoftBank Group Corp’s (9984.T) Vision Fund and Sequoia Capital had also marked down their investment to zero after FTX, founded by Sam Bankman Fried, filed for bankruptcy protection in the U.S. last year.

“With FTX, as alleged by prosecutors and as admitted by key executives at FTX and its affiliates, there was fraudulent conduct intentionally hidden from investors, including Temasek,” Lim said in the statement on Monday. “Nevertheless, we are disappointed with the outcome of our investment, and the negative impact on our reputation.”

Temasek seeks to deliver sustainable returns over the long term by investing into early-stage companies, Lim said.

“While there are inherent risks whenever we invest, we believe that we have to invest in new sectors and emerging technologies to understand how these areas may impact the business and financial models of our existing portfolio, and whether they would be drivers of future value in an ever changing world,” Lim added.

($1 = 1.3245 Singapore dollars)

Reporting by Urvi Dugar in Bengaluru and Yantoultra Ngui in Singapore; Editing by Himani Sarkar and Lincoln Feast.



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