Pvt investment to trickle in once capacity utilisation goes beyond75%: Kotak
if capacity utilisation goes up and we keep up stability on interest rates and taxation, and also policies of entry and exit from different sectors, we can actually create a positive environment for getting people's animal spirits back, says Uday Kotak
image for illustrative purpose
New Delhi: Private investment, which has been muted for a long time, will start trickling in once the overall capacity utilisation in the system goes beyond 75 per cent that, in turn, will help unleash 'animal spirits', CII President Uday Kotak said on Wednesday.
The Covid-19 pandemic gave a shock to capacity utilisation and as companies go to capacity utilisation above 75 per cent, they will start looking at expansion and making investments, Kotak told PTI in an interview. "The second and the third points for getting private investment...a stable interest rate, and a stable tax regime. Additionally, if capacity utilisation goes up and we keep up stability on interest rates and taxation, and also policies of entry and exit from different sectors, we can actually create a positive environment for getting people's animal spirits back," he said. The term 'animal spirits' was coined by celebrated economist John Maynard Keynes to refer to investors' confidence in taking action in terms of investment.
To encourage fresh investment from the private sector, the government in September 2019 cut corporate tax to one of the lowest in the world. In the biggest reduction in 28 years, the government slashed corporate tax rates up to 10 percentage points as it looked to pull the economy out of a six-year-low growth with a Rs 1.45-lakh crore tax break. Base corporate tax for existing companies has been reduced to 22 per cent from 30 per cent; and from 25 per cent to 15 per cent for new manufacturing firms incorporated after October 1, 2019, and starting operations before March 31, 2023.
Most of the domestic companies have been shying away from making investments but rather busy in de-leveraging their books for the past few years. As a result, the responsibility of capital formation has largely fallen on the government's and state-owned firms' shoulders. Even during the pandemic period, PSUs have undertaken capital expenditure (capex). Praising the RBI for its various steps, Kotak, who is also the managing director of Kotak Mahindra Bank, said the central bank has managed the monetary policy wonderfully in 2020 by ensuring adequate liquidity and maintained stability in the financial sector.
