Now, to sustain the surge in investments

Finance minister Nirmala Sitharaman sees the private capex cycle as having turned after prolonged slack, she told this paper this week. There is evidence that government capex has crowded in private investment in infrastructure. A revival in housing has also improved investment appetite in industries like steel and cement. Bank lending to project finance, an early indicator for investment, has surged. Demand for corporate credit is being led by greenfield investment in sectors GoI is focusing on, such as RE, and capacity expansion in infra. There is heightened local interest in high-profile FDI proposals in a clutch of industries, from aerospace to electronics.

The conditions for private capex to take off have been around for a while now. Banks have money to lend after cleaning up bad loans, and companies have deleveraged during an investment downcycle. The government capex cycle is still accelerating, increasing the scope for private investment. A credit-led recovery of demand is improving capacity utilisation in consumer-facing industries like automobiles. Banks expect corporate lending will offset slowing consumer credit growth.

Investment cycles are long, so the inflection point may be worth the wait. India has been in an investment slump since 2013 due to a secular decline in the household savings rate. Structural changes to the economy over the past decade, followed by external shocks, have kept savings low. Yet, interest rates remained stable because of low investment demand. The cycle is turning at a point when interest rates are above the trend line. A return to trend would require a measure of comfort over inflation. It would also support consumption demand critical for broad-based capacity expansion. FM’s confidence of an investment revival is comforting. She may have to apply herself to sustain it.