Private investment when demand is falling?

The next government which comes into power on 23 May, when election results are announced, must ask "what are the binding constraints to strong sustainable and job creating growth in India", wrote SZ Chinoy. There are two constraints. "First, India's growth is not being led by private investment, which limits both its strength and sustainability. Second, growth is not creating commensurate jobs, because the 'effective' cost of labour -- relative to capital -- is too high." Unfortunately, Chinoy seems to have forgotten that India is a socialist country and socialism was added to the Preamble to the Constitution in 1976 by the then prime minister Indira Gandhi. "CK Prahalad promulgated the concept of 'the fortune at the bottom of the pyramid'. He used an example of the shampoo sachet to explain it," wrote A Maira. Poor people cannot "afford to buy a whole bottle of shampoo", so a multinational company "repackaged its shampoo in very small sachets" which the poor could afford. The poor paid for the increase in wealth of the investors. Maira suggests that every business should be a cooperative, owned by its employees. You cannot start any business without capital and no foreign business will invest here unless it expects to make profits. Although patent protection is weak in India, using poverty as an excuse, no company is going to give up its intellectual property without adequate compensation. There is a superabundance of capital in the world which needs to be taxed to "prevent excess substitution of labour with capital", wrote R Jagannathan. India already has a Minimum Alternative Tax so even loss making companies are forced to pay some tax, and some sectors are taxed on gross revenue and not on profits. Corporate tax rate in Ireland is only 12.5%, and the US brought its corporate tax rate down to an effective rate of 25.7% from 35%. Number of private projects under implementation is declining, wrote Prof I Patnaik. Consumer demand is weakening in India which is leading to lower private investment, wrote A Nag. Consumer demand is unlikely to pick up unless there is strong jobs growth which is dependent on increased investment. Household savings has declined to 17.2% of GDP and automobile sales are down. "India's effective cost of labour remains inordinately high because of strangulating labour laws" so these have to be reformed. However, labour reform slowed down during this government which could be due to Rahul Gandi's "suit boot ki sarkar" jibe. We know what ails the nation but socialists want to distribute wealth before creating it. The new government will be the same.