High tax receipts mean enough money. So, why borrow?

Two papers were published by Reserve Bank of India (RBI) staffers in September. The first paper shows that bank credit offtake posted a compound annual growth rate (CAGR) of 16.8% from 2007-08 to 2013-14, but fell to 8.3% between 2014-15 and 2020-21, while industrial credit growth plummeted from a CAGR of 19.6% to 1.6%, wrote Rajrishi Singhal. Industries could have received funding from foreign direct investment (FDI) or by borrowing overseas. "India has attracted highest ever total FDI inflow of US$81.72 billion during the financial year (FY) 2020-21and it is 10% higher as compared to the last financial year 2019-20 (US$74.39 billion). FDI equity inflow grew by 19% in the FY 2020-21 (US$59.64 billion) compared to the previous year FY 2019-20 (US$49.98 billion)," Ministry of Commerce and Industry. Normally, investment into equity and bonds is called foreign portfolio investment (FPI) while FDI stands for investment into productive assets, Investopedia. By this definition, actual FDI in 2020-21 was just over $22 billion. World Bank data show the gross capital formation in India slipped from 41.9% of gross domestic product (GDP) in 2007 to 28.4% in 2020, tradingeconomics. Gross capital formation refers to spending on electricity and capital goods, such as equipment, tools and transportation assets, Investopedia. The second paper by RI staffers says that there is a "sharp fall in new private-sector projects being taken up each year and a sharper fall in the number of projects getting completed each year". So, will the private sector buy into the National Monetisation Pipeline (NMP), which plans to raise Rs 6 trillion over the next 5 years by allowing private companies to manage public sector assets on payment of a large sum of money up front, NITI Aayog? The government intends to invest in infrastructure. "Buoyant tax receipts (34.2% of 2021-22 budget estimates) have raised hopes, but tepid capital expenditure figures (23.2%) dampened spirits." Buoyant tax receipts in a stagnant economy may be the culprit. "Given that government tax revenues are doing far better than expected of budgeted in the first quarter of the current fiscal year 2020-21, some people may put two and two together and argue that private-sector distress (high fuel taxes) is the cause of relatively robust public sector finances," wrote Prof V Anantha Nageswaran. It is. Consumers expect high inflation and "India's private final consumption expenditure (PFCE) declined by six percent in nominal terms to Rs 115.7 trillion in 2020-21 from Rs 123.1 trillion in 2019-20.  Consumption expenditure growth has been slowing through the last decade," wrote Manasi Swamy. "Household incomes data available from CMIE's (Centre for Monitoring Indian Economy) Consumer Pyramids Household Survey (CPHS) indicate that compared to a year ago, nominal household incomes shrank by 29.4 percent in the first quarter of 2019-20, by 11.6 percent in the second quarter and by 8.2 percent in the third quarter. The cumulative income in nominal aggregate household income was 16.3 percent." Nevertheless, Nageswaran wants industry in invest in new projects which will create "a virtuous cycle of supply and demand". At least it will help the government to win elections. Will NMP be a roaring success? "The government's failure to sell any of the 109 railway passenger routes in auctioned in August is a shameful fiasco," wrote Swaminathan SA Aiyar. Leasing out assets for the private sector to run means the government retains control which would be a temptation for politicians and civil servants to interfere. "The idea of monetising assets through operational leases is much more difficult to execute than privatization, where the government exits a state-run business by selling out to a private party and is no longer involved," wrote Vivek Kaul. Government wants to sell to private sector, private sector wants to sell to people but people have no money. Now what?