Domestic capital in Economic Development
Our economic Growth has been facing headwinds which is primarily cyclical in nature. The policy makers, the regulators and the system are making an honest effort to restore it. Many fiscal and monitory policies have been announced and implemented sincerely. These measures, it is expected, will bring the desired outcome. Two major dilemmas are confronting the economy. To improve consumption and encourage more private and public Investment through better liquidity.
On examining the Ministry of Finance data on finance receipts budget, one finds that the amount applied by charitable entities for the purposes for which these have been set up during the financial year 2017-18 was in excess of Rs 5 lakh crore. A further examination of the income earned by such trusts suggests that these organisations invest in prescribed investments and avail of the tax benefits applicable.
The asset classes permissible under the provisions of the Income tax Act suggest that such eligible investments include investments in Savings certificates, account with post office savings bank, investment in the units of Unit Trust of India, investment in Government Securities, deposits with public sector companies. The Act also empowers the tax department to make addition to the list of eligible investments. Under rule 17C of the Income Tax Act, additional investment is set out and inter-alia allows a charitable institution to invest in units of Mutual Funds registered with Sebi.
An evaluation of these asset classes suggests that these are low-yielding assets. On one side, they channelise the investments into the most soughtafter risk-free investments yielding negative Inflation adjusted returns, thereby reduce the ability on part of the charitable institutions to allot more funds for Education and Health care purposes. Current permitted instruments provide returns below inflation (of ~6 per cent pa on a tax adjusted basis) and create illiquid assets, thereby reducing finances for scholarships, improving educational quality and research.
Charitable trusts and universities in India have historically invested a significant portion of their available Resources in real estate or in basic financial instruments. These institutions have been unable to support the need for capital in growth sectors due to constraints. A sizeable amount of funds is locked up which can be invested in productive assets for the economy. Charitable institutions are generating an estimated nearly Rs 90,000 crore of surplus investible capital per annum. This amount, if freed, can be utilised for promoting consumption as well as for Capital Expenditure. Both in India and globally, insurance companies and pension funds have seen good success by investing in alternative asset classes. Indian charitable institutions should be allowed in diverse asset classes to be able to generate better yields, thereby have more resources to support the cause for which they are set up. There is a critical need to enable charitable institutions to invest in a wide variety of asset classes such as Equity/”>Private Equity, Infrastructure-2/”>INFRASTRUCTURE and other instruments, which can provide higher inflation-adjusted returns. Charitable institutions should be allowed to invest in Sebi-regulated entities such as AIF, REIT and InvIT, in addition to the currently allowed list of eligible investments.
The Government of India have taken significant initiatives to strengthen the economic credentials of the country and make it one of the strongest economies in the world. India is fast becoming home to start-ups focused on high growth areas such as mobility, E-Commerce, and other vertical specific solutions – creating new markets and driving innovation. Rise in domestic investments has been one of the biggest contributors to the India growth story and public and private sector have both enabled and sustained these investments.
The Government of India has taken several initiatives across sectors to improve the overall economic condition in the country. Some of these are:
- Mr Nitin Gadkari, Union Minister for Road Transport & Highways and MSME stated that the government aims to enhance MSME’s contribution to GDP from ~30% to 50%; in exports from 49% to 60%. He also said that the government aims to create 5 crore (50 million) additional jobs in the MSME sector, which currently employs ~110 million people.
- On September 09, 2020, Union Minister of Finance & Corporate Affairs, Ms Nirmala Sitharaman inaugurated ‘Doorstep Banking Services’, by Public Sector Banks (PSBs), which enabled customers to avail all the banking services right at their doorstep through the universal touchpoints of Call Centre, Web Portal or Mobile App.
- On June 01, 2020, the Government of India launched ‘PM Svanidhi Scheme’ to help street vendors resume their livelihood activities. It targets to benefit >5 million street vendors. Under this scheme, vendors can avail a WORKING CAPITAL loan of up to Rs 10,000 (US$ 137), which will be repayable in monthly instalments in the tenure of one year.
- Atal Innovation Mission (AIM), NITI Aayog, in September 2020 launched the ‘Aatmanirbhar Bharat ARISE-Atal New India Challenges’ programme to boost research and innovation in Indian MSMEs and start-ups by providing funds up to Rs 5 million (US$ 0.08 million) to support speedy development of the proposed technology solution and/or a product.
- As of September 09, 2020, a sum of ~Rs 1.03 billion (US$ 1.4 billion) was released by the Ministry of Road Transport and Highways a part of Aatma Nirbhar Bharat, in building road infrastructure in the country. Another sum of Rs 24.75 billion (US$ 0.3 billion) is being processed and likely to be released soon.
- In August 2020, Prime Minister, Mr Narendra Modi, launched a financing facility worth Rs 1 trillion (US$ 13.75 billion) under the ‘agriculture Infrastructure Fund’. In August 2020, Japan committed ~Rs 35 billion (US$ 472.94 million) as ‘Officia
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Domestic capital is a key driver of economic development. It can be used to finance investment in new businesses, infrastructure, and technology, all of which can lead to higher productivity and economic growth.
Domestic capital can come from a variety of sources, including savings, government investment, and Foreign Direct Investment. Savings are the most important source of domestic capital, as they provide the resources that businesses need to invest in new projects. Government investment can also be a significant source of domestic capital, particularly in developing countries where the private sector is not yet strong enough to finance all of the necessary investment. Foreign direct investment can also be a major source of domestic capital, as it brings in new resources and expertise from abroad.
Domestic capital is essential for economic development, but it is not the only factor that matters. Other important factors include Entrepreneurship, Financial Markets, Human Capital, infrastructure, innovation, investment, labor force, Natural Resources, productivity, technology, trade, and wealth.
Entrepreneurship is the ability to identify and exploit new opportunities. It is essential for economic development, as it is the driving force behind innovation and new business creation. Financial markets provide the means for businesses to raise capital and finance their operations. Human capital is the knowledge and skills of the workforce. It is essential for economic development, as it determines the productivity of the workforce. Infrastructure is the physical and social structures that support economic activity. It includes roads, bridges, Airports, power Plants, and water and sanitation systems. Innovation is the process of creating new products, services, and processes. It is essential for economic development, as it leads to higher productivity and economic growth. Investment is the act of spending Money on Capital Goods, such as machinery and equipment. It is essential for economic development, as it increases the productive capacity of the economy. Labor force is the people who are available for work. It is essential for economic development, as it provides the workforce that businesses need to operate. Natural resources are the raw materials that are used to produce goods and services. They are essential for economic development, as they provide the inputs that businesses need to produce their products. Productivity is the amount of output that is produced per unit of input. It is essential for economic development, as it determines the standard of living of a country. Technology is the knowledge and tools that are used to produce goods and services. It is essential for economic development, as it leads to higher productivity and economic growth. Trade is the exchange of goods and services between countries. It is essential for economic development, as it allows countries to specialize in the production of goods and services in which they have a comparative advantage. Wealth is the total value of the assets that a country owns. It is essential for economic development, as it provides the resources that countries need to invest in their economies.
In conclusion, domestic capital is a key driver of economic development. It can be used to finance investment in new businesses, infrastructure, and technology, all of which can lead to higher productivity and economic growth. However, domestic capital is not the only factor that matters for economic development. Other important factors include entrepreneurship, financial markets, human capital, infrastructure, innovation, investment, labor force, natural resources, productivity, technology, trade, and wealth.
What is domestic capital?
Domestic capital is the money that is invested in a country by its own citizens. It can be used to start new businesses, expand existing businesses, or invest in infrastructure.
What are the benefits of domestic capital?
Domestic capital has many benefits for a country’s economy. It can help to create jobs, increase economic growth, and improve the standard of living.
How can domestic capital be increased?
There are a number of ways to increase domestic capital. One way is to encourage people to save more money. Another way is to make it easier for businesses to get loans. Finally, the government can also invest in infrastructure and other projects that will attract domestic investment.
What are the challenges of domestic capital?
There are a few challenges associated with domestic capital. One challenge is that it can be difficult to attract domestic investment in countries with high levels of Corruption or political instability. Another challenge is that domestic capital can be volatile, and can flow out of a country quickly if there is a change in economic conditions.
What are the risks of domestic capital?
There are a few risks associated with domestic capital. One risk is that it can be used to finance unproductive activities, such as speculation or corruption. Another risk is that domestic capital can be used to buy up foreign assets, which can lead to a loss of national Sovereignty.
What are the opportunities of domestic capital?
There are a number of opportunities associated with domestic capital. One opportunity is that it can be used to finance productive activities, such as new businesses or infrastructure projects. Another opportunity is that domestic capital can be used to invest in foreign countries, which can help to promote economic development around the world.
What are the future trends of domestic capital?
The future trends of domestic capital are difficult to predict. However, it is likely that domestic capital will continue to play an important role in the global economy.
Which of the following is not a factor of production?
(A) Land
(B) Labor
(C) Capital
(D) EntrepreneurshipWhich of the following is a characteristic of a market economy?
(A) Private ownership of capital
(B) Central planning
(C) Government regulation of prices
(D) Absence of competitionWhich of the following is a characteristic of a command economy?
(A) Private ownership of capital
(B) Central planning
(C) Government regulation of prices
(D) Absence of competitionWhich of the following is a characteristic of a Mixed Economy?
(A) Private ownership of capital
(B) Central planning
(C) Government regulation of prices
(D) Both (A) and (C)Which of the following is a benefit of economic growth?
(A) Increased standard of living
(B) Increased EMPLOYMENT
(C) Increased government revenue
(D) All of the aboveWhich of the following is a cost of economic growth?
(A) Increased pollution
(B) Increased inequality
(C) Increased resource depletion
(D) All of the aboveWhich of the following is a factor that can contribute to economic growth?
(A) Increased investment in education
(B) Increased investment in infrastructure
(C) Increased technological innovation
(D) All of the aboveWhich of the following is a type of economic development strategy?
(A) Import substitution
(B) Export Promotion
(C) Human capital development
(D) All of the aboveWhich of the following is a benefit of economic development?
(A) Increased standard of living
(B) Increased employment
(C) Increased government revenue
(D) All of the aboveWhich of the following is a cost of economic development?
(A) Increased pollution
(B) Increased inequality
(C) Increased resource depletion
(D) All of the above