The Hindu Business Line : Back with a Bang — Pvt corporates re-emerge as dominant investors

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New Delhi Feb. 5 Private corporates have re-established their position as dominant investors in the Indian economy after a brief period of playing second fiddle to the public sector.

The Central Statistical Organisation's (CSO) national accounts time series data shows that every year prior to 1995-96, gross capital formation in the public sector exceeded that by private corporateswith the former in most years ruling twice or thrice the levels of the latter.

The year 1995-96 was a landmark one, when, for the first time, the organised private sector displaced the public sector as the dominant investor. Buoyed by the optimism accompanying the initial burst of economic reforms, private corporates went on a massive investment binge. But this unshackling of their `animal spirits' proved transitory and lasted only till around 1997-98. Between 1998-99 and 2002-03, the public sector re-emerged to reclaim its erstwhile `commanding heights' role. During this period, corporate private investment stagnated or even fell in absolute terms.

Since then, however, there has been a renewed turnaround. In 2005-06, private corporates are estimated to have invested a record Rs 459,716 crore in machinery, equipment and construction - nearly 50 per cent more than what they did in 2004-05 and 75 per cent more than the Rs 264,426 crore by the public sector. This trend would only have consolidated itself in the current fiscal and, as things stand, the boom shows no immediate signs of petering out.

But then, as they say, sentiment is a very fickle thing. In the mid-nineties, even high lending rates of 18-20 per cent did not deter corporates from carrying out expansions or investing in fresh capacities. On the other hand, neither did the historically low rates of the early-2000s spur them to announce, let alone undertake, new projects.

The common factor in both the present as well as its predecessor boom has been this good old thing called `sentiment'. And what precisely it is a function of is something that has eluded answers from even the most dogged practitioners of the Dismal Science.