Government's Focus On Infrastructure Can Lead To Sustained Revival in Investment: RBI

The Reserve Bank of India (RBI) recently said that increased business confidence coupled with the government’s focus on infrastructure could lead to a sustained revival in the investment cycle.

According to the RBI Monetary Policy Report for April 2024, domestic economic activity remained strong in the first half of 2023-24, with strong fundamentals amid the challenges of weak global demand.

According to the report, private consumption was supported by urban demand, while capital goods investment and decreased net worldwide demand drove an increase in real GDP (gross domestic product). It has been also reported that manufacturing activity strengthened on the supply side.

The sector benefited from lower raw material costs and improvements in the global supply system. Also, construction activities remained strong due to increasing demand for housing and the government’s emphasis on infrastructure.

The RBI report said, “Going forward, private consumption will be supported by better rural demand prospects and rising consumer confidence”.

The government is said to further focus on infrastructure creation, which will boost private consumption. The increase in corporate investment and enthusiasm at the business level could sustain the revival of the investment cycle. This is encouraging for increased productivity and economic growth.

The report further states, “The growth potential of the economy at the medium and long-term level is increasing.” This is due to structural factors such as improvement in physical infrastructure, development of world-class digital and payment technology, ease of doing business, increasing labour force participation, and improvement in the quality of fiscal expenditure.

The government has projected the current fiscal situation to increase with private investment in 2024-25. It is projected that capital spending will reach Rs 11.11 lakh crore, an increase of 11 per cent for the year. In the financial year 2023–24, capital expenditure increased by 37.5 per cent to Rs 10 lakh crore.

A year ago, consumer confidence hit a record high, according to the RBI survey. It also stated that investment activity prospects are still favourable. This is because of rising private capital expenditure, steady and strong government capital expenses, solid bank and company balance sheets, higher capacity utilization, and strong business optimism.