Explain the meaning of investment in an economy in terms of capital formation. Discuss the factors to be considered while designing a concession agreement between a public entity and a private entity.

Importance of private investments

(1) Household saving and other private savings are used to mobilise finance

(2) Government needs to focus on core sectors and hence private investment is required in sectors like health, education, innovation.

(3) Creates jobs by investing in various industries, sectors (MSME), startups etc

(4) India's R&D suffers because of low private participation and investment ~30% as compared to 70% in OECD countries. (5) Private can focus on profit and hence enhances productivity. (6) It reduces monopoly of government. (7) Exports, new technology are also dependent on private investment.

FACTORS INHIBITING FLOW

(1) Crowding out of private due to increased government borrowings (2) Restrictions on capital convertibility has hampered low cost investments (3) Government's stringent rules & regulation hampers EODB and hence private investment. (4) Monopolising of various sectors like Mining, etc.

Measures

→ Liberal FDI policy. → Fiscal consolidation as refereed by FRBM Act → Enhancing EODB by digitizing and use of technology → Focusing on contract enforcement. → Opening up of new sectors via PPP models like HAM.

→ Collaborating of govt and private is important to maintain virtuous cycle.