Topic: GS3 – Indian economy
- Fresh investment announcements in Q2 2023-24 amounted to ₹6.9 lakh crore, representing a 13% drop from Q1 and a 21.5% decrease compared to the same period last year.
- This decline was influenced by reduced investment commitments from the Union government and foreign investors, coupled with a contraction in various sectors, including manufacturing, mining, infrastructure, and electricity.
Importance of investments for economy:
- Investments drive economic growth by increasing production capacity and stimulating demand.
- They create job opportunities, reducing unemployment and poverty.
- Investments in infrastructure enhance productivity, supporting business activities.
- Long-term investments can lead to technological advancements and innovation.
- Investment inflows can boost a country’s competitiveness and attractiveness to global markets.
- They contribute to increased tax revenue for the government, supporting public services.
- Investments can lead to increased exports, contributing to a favorable balance of trade.
- Encouraging investments fosters a stable and resilient economy, even during economic downturns.
Challenges regarding this for Indian economy:
- Infrastructure Gaps: Inadequate transportation, power, and digital infrastructure can deter investors due to logistical challenges and increased operational costs.
- Regulatory and Bureaucratic Hurdles: Complex regulations and bureaucratic procedures can discourage investors by creating delays and uncertainty in business operations.
- Legal System and Contract Enforcement: Delays and inefficiencies in the legal system can create uncertainty for investors, affecting contract enforcement and dispute resolution.
- Taxation Issues: Frequent changes in tax policies and complex tax structures can make it difficult for businesses to plan investments, impacting financial predictability.
- Corruption and Transparency: Corruption can deter investors, erode trust, and increase operational risks. Transparency is vital for investor confidence.
- Access to Finance: Limited access to financing options can hinder investment, especially for smaller businesses with constrained capital.
Question: Discuss the significant challenges faced by the Indian economy in attracting and sustaining investments. Provide insights into how addressing these challenges can promote economic growth and stability in India.”