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Back to the real mission of growth

Now that we are done with State Assembly elections, policymakers can turn their attention back to the major aim of accelerating economic growth. The second advanced estimates of Central Statistics Office indicate that the growth rate of GDP for 2016-17 will be 7.1%. The efficiency in the use of capital and the investment rate  are the two factors that determine the growth rate. The growth rate is measured by calculating the ratio of investment rate divided and the incremental capital-output. In the last five years, the country has seen  a rise in ICOR and a decline in the investment rate, both of which can only lead to a lower growth rate. Factors like non-availability of critical inputs, lack of complementary investments in related sectors  and delays in the completion of projects can all lead to a rise in ICOR. The Economic Survey of 2015-16 reported that there were 404 stalled projects, 242 in the private sector and162 in the public sector. We have to get these “stalled projects” moving. The country s investment rate reached a peak of 38.0% of GDP in 2007-08. Since then, there has been a steady decline in the investment rate. With a low investment rate and gross fixed capital formation,  it is simply impossible to achieve a growth rate in the range of 8 to 9%. Some of the reasons are repressive  external environment, domestic policy paralysis and inability to take decisions because of coalition compulsions. India must work towards creating an appropriate investment climate  for attracting investment resurgence in the country.

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