Analyze the reasons behind the sluggish pace of private sector investment in India despite fiscal consolidation efforts. What policy measures are needed to kickstart a new virtuous cycle of investment?

Why?

In the Interim Budget 2024-25, Finance Minister signalled the tapering of government spending and wants the private sector to step-up their investments.

Approach:

• Introduce your answer with the Indian government’s fiscal consolidation efforts and the continued sluggishness in private sector investment.
• In the main body, discuss the reasons for muted private investment, ranging from global economic challenges to domestic issues like inflationary pressures and regulatory hurdles. Outline policy measures needed to stimulate a new investment cycle, including balanced monetary policy, increased infrastructure spending and structural reforms to boost consumption and reduce compliance costs.
• Conclude on the importance of targeted policy measures and reforms in overcoming challenges to private sector investment.