Not too late for investment allowance

(D. H. Pai Panandiker is the President of RPG Foundation. The views expressed in this column are his own)

By D. H. Pai Panandiker

February was possibly the right time to do it. But that would have required the introduction of Finance Bill for which there was neither time nor the assured majority in Parliament. Even so it is not too late to introduce the investment allowance.

Australia was the first country that thought about the investment allowance at the right time and is possibly also the first country to come out of recession.

When growth slows down profitability gets squeezed and investment gets postponed. That calls for measures that will make investment attractive once again.

Presently, our policy target is to back up demand both for consumption and investment. The stimulus packages announced earlier did so mainly in respect of consumer demand and, to an extent, public sector investment. What the economy is really lacking is a heavy dose of private investment.

The delay in private investment was not for want of projects. In the quarter ending March 2009, for instance, investments worth Rs.7.9 lakh crores were identified. Partly, the crash in the stock market made it difficult to raise equity capital; partly the high interest rate made it difficult to raise loans. More important, motivation was weak.

A fiscal incentive is necessary to kick up private investment. The partial revival of the stock market has to an extent made capital mobilization easier.