The answer lies in the many kinds of political uncertainty, low and declining Gross Fixed Capital Formation, and the many quirks of Indian policymaking.
(1) Glass half full or empty? You call the recent rise 5% point rise in the investment ratio "an uptick." One might just as well have called it "a promising rebound," depending on mood and ideological inclination.
(2) You emphasize factors like regulation and policy uncertainty that (while important over the long haul) may not have changed much between the last government and this one, and which therefore cannot explain the fluctuation in investment. Attributing macro-cyclical fluctuations to slow-moving structural factors seems to be a typical category error in "Washington Consensus" type thinking. To the extent the Vodaphone incident caused an exceptional spike in uncertainty, that was, as you say, the work of the previous government.
(3) You mention but do not make enough of the horrible state of the financial sector at the end of the last government. Cleaning up the mass of bad debts took time and seems to have set off a severe credit squeeze. That is the sort of macro-cyclical shock that would provide a plausible explanation for the cycle in investment.
Echoing Milan's third point above, do you not buy (did not see it mentioned much) the general narrative that a huge part of the slowdown in investment is due to the "twin balance sheet problem" caused by toxic assets on bank and corporate balance sheets (due to over optimistic or fraudulent lending for projects pre-GFC) which has been taking time to unwind even after the new bankruptcy code was passed?
I have seen some argument that some of the uptick we are seeing now is the code having had some successes for some of those toxic assets and NPLs but that it has not been as successful as hoped in completely solving the issue.
I wish you write more about the connections between the rule of law, public trust in institutions and economic progress over the long term. Your article implies that arbitrary policies erode public trust leading to an adverse impact on GFCF. However, arbitrary policies are a result of poor state of the justice system, lack of independence of institutions, and lack of transparency. These lead to a lack of trust in the rule of law and a just system, eventually impacting economic progress.
Whatever cautious optimism you showed, one thing is clear , india is not seeing any structural transformation in any way ... & nobody has given any full explanation of that ...
Indian economy is likely to be driven by crony capitalism and premiumisation / gentrification of consumer economy ....and "eliminating" poverty-well on paper.
Indian illiberal political class will deploy tiny transactional micro-schematic personalised welfarism & Lockean-Hayaek-type "policy-liberals" will profess "growth above equity" rebuking Picketty ( never mind, Premabular Values of egalitarianism & myth of trickle down in gentrified economy) ....till , situation becomes combustible with the frustration of lower class with extra-parlimentary uprising...
Till then , Both of this illiberal political class & "policy-liberals" would remain in equilibrium trap...
A few points.
(1) Glass half full or empty? You call the recent rise 5% point rise in the investment ratio "an uptick." One might just as well have called it "a promising rebound," depending on mood and ideological inclination.
(2) You emphasize factors like regulation and policy uncertainty that (while important over the long haul) may not have changed much between the last government and this one, and which therefore cannot explain the fluctuation in investment. Attributing macro-cyclical fluctuations to slow-moving structural factors seems to be a typical category error in "Washington Consensus" type thinking. To the extent the Vodaphone incident caused an exceptional spike in uncertainty, that was, as you say, the work of the previous government.
(3) You mention but do not make enough of the horrible state of the financial sector at the end of the last government. Cleaning up the mass of bad debts took time and seems to have set off a severe credit squeeze. That is the sort of macro-cyclical shock that would provide a plausible explanation for the cycle in investment.
Echoing Milan's third point above, do you not buy (did not see it mentioned much) the general narrative that a huge part of the slowdown in investment is due to the "twin balance sheet problem" caused by toxic assets on bank and corporate balance sheets (due to over optimistic or fraudulent lending for projects pre-GFC) which has been taking time to unwind even after the new bankruptcy code was passed?
I have seen some argument that some of the uptick we are seeing now is the code having had some successes for some of those toxic assets and NPLs but that it has not been as successful as hoped in completely solving the issue.
I wish you write more about the connections between the rule of law, public trust in institutions and economic progress over the long term. Your article implies that arbitrary policies erode public trust leading to an adverse impact on GFCF. However, arbitrary policies are a result of poor state of the justice system, lack of independence of institutions, and lack of transparency. These lead to a lack of trust in the rule of law and a just system, eventually impacting economic progress.
Whatever cautious optimism you showed, one thing is clear , india is not seeing any structural transformation in any way ... & nobody has given any full explanation of that ...
Indian economy is likely to be driven by crony capitalism and premiumisation / gentrification of consumer economy ....and "eliminating" poverty-well on paper.
Indian illiberal political class will deploy tiny transactional micro-schematic personalised welfarism & Lockean-Hayaek-type "policy-liberals" will profess "growth above equity" rebuking Picketty ( never mind, Premabular Values of egalitarianism & myth of trickle down in gentrified economy) ....till , situation becomes combustible with the frustration of lower class with extra-parlimentary uprising...
Till then , Both of this illiberal political class & "policy-liberals" would remain in equilibrium trap...