Why?

4Ps – political leadership, public financing, partnerships and people’s participation were declared as India’s formula for achieving developmental results at Mahatma Gandhi International Sanitation Conference (MGISC) held in Delhi in October 2018.

Approach:

• Introduce your answer by briefly outline the 4P model’s impact on India’s national programs like Swachh Bharat Mission.
• In the main body, analyze each element of the 4P model – Political Leadership: Vision and monitoring, Public Financing: Resource allocation and infrastructure development, Partnerships: Collaboration and stakeholder engagement, People’s Participation: Community involvement and empowerment.
• Conclude by emphasizing the 4P model’s role in fostering sustainable development and its potential for future challenges.

Answer:

The success of national programs in India has often been attributed to a holistic approach encapsulated by the 4P model — Political Leadership, Public Financing, Partnerships, and People’s Participation. This model has not only propelled initiatives like the Swachh Bharat Mission but has also been a blueprint for addressing complex social and environmental challenges.

Political Leadership:

• Strategic Vision and Commitment: Political leadership provides the direction and impetus for large-scale national programs. The leader’s vision and commitment are crucial for mobilizing government machinery and resources toward achieving specific goals.
  • Prime Minister Narendra Modi’s leadership was pivotal in launching and driving the Swachh Bharat Mission, aimed at eliminating open defecation.
• Policy Implementation and Monitoring: Effective political leadership ensures that policies are not only formulated but also efficiently implemented and monitored.
  • The direct involvement of the Prime Minister’s Office in regularly monitoring the progress of the Swachh Bharat Mission.
• Policy Consistency and Continuity: support is essential for the long-term success of any national initiative.

Public Financing:

• Resource Allocation: Public financing is critical for providing the necessary economic resources to support extensive developmental programs.
  • The Indian government invested approximately $20 billion in sanitation, significantly impacting public health and hygiene under the Swachh Bharat Mission.
• Sustainability and Scale: Adequate public financing ensures that initiatives can be scaled up to cover larger populations and are sustainable over long periods.
  • Expansion of sanitation facilities across India, impacting millions of lives and contributing to the achievement of SDG 6.
• Infrastructure Development: Investments are often channeled into infrastructure development, which is vital for the sustainable impact of any developmental program.

Partnerships:

• Collaborative Efforts: Partnerships with international bodies, NGOs, and local communities enhance the reach and effectiveness of government programs and facilitate the exchange of knowledge and best practices.
  • The Swachh Bharat Mission’s collaboration with entities like the World Bank, UNICEF, and the Gates Foundation to amplify impact and gather diverse expertise.
• Stakeholder Engagement: Engaging multiple stakeholders ensures a multifaceted approach to problem-solving and program implementation.
  • Involvement of local bodies, panchayats, and community organizations in the operational aspects of the Swachh Bharat Mission, ensuring ground-level execution and feedback.
• Resource Optimization: Through strategic partnerships, resources from various stakeholders can be optimized, reducing duplication of efforts and maximizing impact.

People’s Participation:

• Community Involvement: The active participation of the community is crucial for the acceptance and success of any program.
  • Rural communities across India actively participated in the Swachh Bharat Mission, leading to widespread construction and use of toilets.
• Empowerment and Ownership: Empowering people to take charge of initiatives ensures sustainability and effectiveness.
  • Women and girls becoming leaders in the sanitation movement, significantly influencing behavioral change and community norms.
• Feedback Mechanisms: Involving people ensures that their insights and concerns are incorporated, making programs more adaptive and responsive.
• Capacity Building: Training and educating local communities empowers them to effectively support and sustain government initiatives.

The 4P model has proven to be a robust framework for the successful implementation of various national programs in India. It creates a conducive environment for sustainable development, social transformation and also address future challenges, enhancing India’s trajectory towards achieving comprehensive development goals.

‘+1’ Value Addition:

• The 4 Ps have successfully been applied to other national programmes in India, including LIFE (Lifestyle for the Environment), the Jal Jeevan Mission and many more.
• Today, as the world is renewing its focus on the achievement of the SDGs and addressing global challenges, including climate change, pandemics, fragility, water and energy access and food security, the relevance of India’s 4Ps, especially the political leadership has never been greater.

Why?

The failure of private investment, as measured by private Gross Fixed Capital Formation (GFCF), to pick up pace has been one of the major issues plaguing the Indian economy.

Approach:

• Introduce your answer by defining Private GFCF as net investment by the private sector in fixed assets crucial for expanding economic capacity, enhancing productivity, and ensuring sustained growth.
• In the main body, discuss causes like low consumer spending and policy uncertainty; explore implications such as reduced competitiveness and job creation; assess government actions like tax cuts and infrastructural investments.
• Conclude by emphasizing the necessity of consistent, comprehensive policies to restore private investment, vital for India’s long-term economic health and stability.

Answer:

Private Gross Fixed Capital Formation (GFCF) refers to the net investment in fixed capital by the private sector within an economy. This includes building new plants, machinery, and infrastructure.  A high GFCF is crucial for economic growth as it expands the productive capacity of the economy, leading to higher output and improved living standards. The failure of private investment, as measured by private Gross Fixed Capital Formation (GFCF), to pick up pace has been one of the major issues plaguing the Indian economy.

Causes for the Decline in Private Gross Fixed Capital Formation (GFCF):

• Low Consumption Expenditure:Businesses hesitate to invest if they perceive a lack of future demand for their products due to weak domestic consumption.
  • However, historical data in India shows an inverse relationship at times between private investment and domestic consumption.
• Stagnant Reforms and Policy Uncertainty: since the early 2010s have discouraged long-term investments. Businesses require a stable and predictable policy environment to make risky, long-term investment decisions.
• Stressed Banking System: High levels of NPAs in the banking system have made banks cautious about lending to the private sector. This restricts credit availability, especially for smaller businesses, and hinders their ability to invest and expand.
• Infrastructural Bottlenecks: Inadequate infrastructure, such as power, transportation, and logistics, increases the cost of doing business and discourages investments.
• Skill Mismatch: A skills gap in the workforce can make it difficult for businesses to find qualified personnel. This can discourage investment in certain sectors.
• Global Factors: A weak global economic environment, rising geopolitical tensions and trade wars can impact demand for Indian exports, reducing business confidence and investment.

Implications for India’s Economic Growth:

• Long-term Growth Prospects: Sustained decline in private GFCF limits the expansion of productive capacity and technological advancements, directly affecting GDP growth rates, living standards and economic stability.
  • According to Economic Survey, a 1% increase in GFCF is associated with an approximate 0.4% increase in GDP growth.
• Employment and Wage Impacts: A slowdown in private investment leads to fewer employment opportunities, affecting income levels and consumer demand.
  • According to CMIE, periods of investment slowdown often correlate with higher unemployment rates and stagnant wage growth, as seen during the post-2011 slowdown.
• Impact on Competitiveness: With lower investment, Indian businesses risk losing their competitive edge both domestically and internationally.
  • Indian manufacturing firms fail to compete effectively with firms from ASEAN countries where higher rates of capital formation are common.
• Fiscal Pressure on Government: to fill the investment gap. This can lead to higher public sector borrowing, leading to concerns about fiscal deficits and debt sustainability.
  • Public sector investment has often increased in years following a decline in private GFCF.
• Sectoral Shifts and Structural Changes: A reduction in private GFCF can lead to sectoral imbalances where certain industries fall behind due to underinvestment. This can alter the economic structure in the long run, potentially leading to inefficiencies and economic vulnerabilities.

Assessment of the Measures Taken by the Government to Revive Private Investment:

• Corporate Tax Reduction: In 2019, the government reduced the corporate tax rate from 30% to 22% for existing companies and to 15% for new manufacturing firms, aiming to increase cash flows and incentivize reinvestment.
  • This has boosted the profitability and cash reserves of companies but its effect on actual reinvestment in GFCF has been mixed due to uncertain demand and global scenario.
• Atmanirbhar Bharat Abhiyan: This broad-ranging policy initiative, launched in response to the COVID-19 pandemic, includes measures to support SMEs, promote sector-specific industries, and improve the ease of doing business.
  • Successful in providing immediate relief to businesses through credit guarantees and fiscal support. However, its long-term impact on enhancing GFCF is yet to be fully realized.
  • Initiatives like the Production Linked Incentive (PLI) scheme have shown promise in attracting new investments in sectors such as electronics and pharmaceuticals.
• Infrastructure Push: Significant public investment in infrastructure, including roads, railways, and urban infrastructure, is intended to stimulate economic activity and create a multiplier effect that encourages private investment.
  • The National Infrastructure Pipeline (NIP) aims to invest ₹111 lakh crores over 2020-25.
  • Crowding-out effect, where government borrowing limits private sector access to capital, remains a concern.
• Reforms in Labour and Land Acquisition Laws: While some states have embraced these reforms, translating them into increased private investment rates across the board has been slow.

Addressing the decline in private GFCF is crucial for safeguarding India’s economic future. Effective policy measures that boost investor confidence, reduce economic uncertainty, and stimulate consumer demand are essential to revive private investment and sustain economic growth.

‘+1’ Value Addition:

Gross fixed capital formation, private sector (% of GDP) in India was reported at 24.71 % in 2021, according to the World Bank collection of development indicators.