The Centre, as part of the next generation reforms agenda, is working on plans to provide incentives for investments in the country.
The government is concerned that profits are coming more from bottomline growth of companies than fresh investment in capacity expansions, according to S Narayan, economic advisor to the Prime Minister's Office.
"Today the problem is management of liquidity. We are not short of investible funds, but short on investment. We urgently need to encourage investment and ensure more capital formation," Narayan said at the Chamber Day function of the Madras Chamber of Commerce and Industry.
The government should ensure that investments shift to production, which would ensure fresh job creation and all-round wealth creation, Narayan said. He was, however, non-committal on the timeframe for introducing specific norms to incentivise investments in the country.
Outlining the challenges faced by the Indian economy, he said fresh investment would flow only if there was stability in tariff structures and demand growth. "Already we are seeing two-wheeler companies reporting positive demand growth".
On the agriculture front, Narayan said the country needed to move towards value addition in products. "Processed foods is the direction in which India needs to grow. We cannot continue being a cereal producing nation anymore," he said.
Narayan said starting October 2004, the Tax Information Network would be in place and the tax to GDP ratio would improve. "Using information technology, we can definitely improve tax collections. Already we have corporate tax collections going up in the last couple of months," he said.
The problem today is that with stricter norms on non-performing assets, financial institutions are moving away from project-based funding and focusing on retail funding.
"The challenge will be to find out how we can make finance available for development projects," Narayan said.
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