A private investment in public equity takes into account the selling of publicly traded common shares or some kind of preferred stock or convertible security to private investors. It refers to allocating shares in a public firm in a stock exchange not through a public offering.
Statistics and Emerging Trends
In 2015, India has reported a 10-year low in investments in public-private sector which added to contraction that brought down the global investment.
As per the report of the World Bank, though global private infrastructure investment in 2015showed similar pattern as compared with the previous year, it was 10 per cent lower as against the previous five-year average as a result of dwindling commitments in countries like China, Brazil, and India.
New Economic Reforms
In the past few years, the government has adopted a few steps which are favourable to ensure the growth of private investment. Some of the highlights of these reforms are:
• Raising investment in public infrastructure.
• Introducing structural reforms in important sectors like power.
• The long-awaited Insolvency and Bankruptcy Code.
• Recent reforms in Foreign Direct Investment (FDI) that increased the limits on FDI in important sectors.
• Legislative and policy measures like introducing Goods and Service Tax (GST), Make in India along with reforms in areas like labour.
Hurdles to Private Investment
Public investment in India have been facing a number of constraints because of increase in public debt and the government’s strategy causing fiscal consolidation.
The balance sheets of India’s financial and corporate sector have been highly stressed in recent times due to the credit-led corporate leverage. This is showing its effect on the short-term growth of credit.
Demand side corporate vulnerabilities have also led to lowering the level of private investment.
The corporate bond market in India is still in the stage of its infancy and is comparatively small.
Weak profitability along with excessive indebtedness, curbs the potential of the Indian corporate sector.
The problem of indebtedness exists persistently because of weak institutions associated with bankruptcy.
The Public Private Partnership (PPP) Model requires restructuring with institutional reforms making it more feasible.
Bank credit growth particularly to industry has been showing a significant decline in recent times reflecting weakening of capital, profitability and asset quality of a number of public-sector banks. These public sector banks have financed a good share of infrastructure.
A scenario of risk inversion in the Indian banking and investment As a result of the global financial crisis in 2008, the external environment has stayed weak and dim ever since.
Nexus between Banks and Corporate Sector Players
The growth of investment in our country is hampered mainly because of the inter relatedness between the performance of banks and the players of corporate sector
This is a big problem that needs an early solution. India has brought in a number of measures with an aim to deal with the bank-corporate nexus:
• Raising the banks’ loan loss provisions.
• Reforming corporate governance of public-sector banks, recapitalising them, and restructuring stressed assets in the long run in a sustained way by means of asset-restructuring schemes.
• Better recognising the scope of the problem by following the Asset Quality Review (AQR).
• Introducing the new bankruptcy code.
• Executing out-of-court debt-restructuring mechanisms.
Way Ahead
• Ensuring rapid execution of steps for keeping a watch on further increasing nonperforming assets and helping faster recovery of investment.
• The government, through the Budget every year, should follow an accelerated approach in the direction of recapitalisation and also recommend incentives for performance and resolution of debt.
• The government should take all steps so as to achieve completely transparent and provisioned public sector bank balance sheets by the completion of this financial year. •• Steps should be taken by the government also in order to accelerate plans so as to restructure weak public banks and divest non-core assets. The financial requirements because of these steps can be shaped into the medium-term fiscal consolidation plan very smoothly. This will help in both, expanding debt markets and improving financing inclusion.
Conclusion
All these existing hurdles are indicative of the persistent and detrimental impact on growth due to the delays in tackling high levels of impaired assets, stunted profitability, and bleak capital positions of banks that have diminished the availability of bank credit. Therefore, it has should be ensured that the problems are nipped in the bud in order to avoid any lowering of credit ratings, economic growth predictions and making the revival of private sector investment possible.