Over the last 5 years we have seen a collapse of private investments in India. Gross Capital formation which moved from levels of 20-22% of GDP in the late 1990’s till 2003 peaked out at 34% in 2009-10 and has since come down to 28%. The fall in Private sector investments has been sharper and the steady growth of 20% in the years 2004-2007 has come to virtually zero.

The core logic given for the collapse in the investment cycle are Collapse of Governance under UPA II,Global slowdown,High interest rates & Environmental issues.

However the corporate sector is as much to blame for the mess. Large established groups of today like Tata’s,Birla’s, Mahindra’s etc went through a tough time during the slowdown from the mid 1990’s till 2002.There were losses across sectors like Cement, Steel, Textiles, Automobiles, Engineering etc. The slowdown was used by business groups of that time to restructure, reduce cost & become lean companies and these companies did very well as the economy went of a high growth path 2003 onwards. These companies did not take big risks during the boom years of 2003-2007 & have done well in the current slowdown. However high economic growth created euphoria and new companies.

Tripping on enthusiasm | Business Line


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