Alternate avenues for fund-raising like insurance and pension funds hold good potential and need to be tapped into for meeting India’s growing capital requirements and for it to achieve its target of eight per cent growth rate in 12th Plan Period, according to a joint study by ASSOCHAM-CARE Ratings.
“The policy challenge in the 12th plan is to reverse the deceleration in growth by reviving investment at a fast pace which calls for actions to tackle implementation constraints in infrastructure which are holding up large projects,†said a study titled ‘Financial Markets-Reviving India Story,’ jointly conducted by The Associated Chambers of Commerce and Industry of India (ASSOCHAM) and credit rating agency, CARE Ratings.
“There is an urgent need to usher in the next set of reforms and bring together all the key sources of funds including specialized financial institutions, capital markets, foreign direct investment (FDI), external commercial borrowing (ECB) or internal accruals to bridge the widening funding gap as banks being the most important funding source for businesses in India are unable to provide adequate funding across all segments owing to asset-liability management issues for lending beyond five years,†said the study that was jointly released by Mr Ashishkumar Chauhan, MD & CEO, BSE Ltd.; Mr D.R Dogra, MD & CEO, CARE Ratings; Mr Shyam Poddar, MD, Forex Capital Securities Pvt. Ltd.; Mr D.S. Rawat, secretary general, ASSOCHAM and Mr S.C. Aggarwal, CMD, SMC Group at the 3rd Annual Summit on Financial Markets organized by ASSOCHAM in New Delhi today.
“The growth and development of various funding sources entails tackling many issues and challenges faced by each of them and bringing about the needed reforms,†it added. “Steps to revive private investment, and also action to stimulate public investment, especially in key areas of infrastructure such as transport, water supply and water resource management must be taken to bring the economy back to nine per cent growth by the end of Twelfth Plan which also requires fixed investment rate to rise to 35% of GDP by then.â€
Expanding investment will help counter the weakening of external demand on account of the global downturn. However, expansion in domestic demand is needed more in the form of enhanced levels of investments, in order to support higher level of production in the short run and to strengthen the longer-term growth potential of the economy, suggested the study.
“Major investment boost is needed in the infrastructure space as this would have a positive effect on reviving private investment in other sectors and would ease supply constraints,†added the ASSOCHAM-CARE Ratings study. “Higher investment levels need to be supported by sufficient expansion in domestic savings, so as to lower the investment saving gap.â€
India’s domestic savings capacity has been an important strength of the economy, although both government and corporate savings have declined in recent years. Household savings, however, have remained strong and are likely to increase in the future, on account of our age composition and as a result of increased financial inclusion, the study said further.