The Planning Commission has favoured sustained efforts to hike public investment to achieve the desired 8 per cent economic growth for which the Centre could consider relaxing fiscal discipline.
"Moving into a high growth trajectory requires a sustained demand impetus from public expenditures, especially public investment, even if it required some relaxation of fiscal discipline," the commission said in its draft approach to Mid-Term Appraisal for Tenth Five-Year Plan.
It said the fiscal correction should not be focused on fiscal deficit instead revenue deficit should be curtailed so as to increase public savings.
Asserting that it was imperative to rev up industrial recovery, the commission said it was possible not only through meeting the agricultural growth targets but also by higher capacity utilisation especially in manufacturing sector.
"Private investment demand is unlikely to revive until the capacity utilisation in industry increased significantly to higher levels," it said.
The revival of rural consumption demand was expected to contribute to investment expansion, "but this will happen only over time if agricultural growth targets are met," it added.
It noted that the Tenth Plan had visualised 8 per cent growth with only a 'relatively modest' investment rate of 28 per cent.
Finding that investment rate was only 23 per cent during 2002-03, the commission said: "It is unlikely that investment rate in 2003-04 was much higher."
However, low investment will mean capacity utilisation in industry increased across the board.
"While some excess capacity remains for tapping in the immediate future, growth will now depend on a major renewal of private investment in critical infrastructure," the commission said.
However, it also lamented that inadequate progress has been made in releasing capacities which were locked up due to structural factors arising out of policy rigidities.
Finding little danger of 'crowding out', the commission felt that improvement in infrastructure was necessary to ensure that private investment expands robustly.
Noting that the data on private investment was not available beyond 2002-03, it said there was some evidence that the economy was in recover phase of the business cycle and private investment may have picked up.
On the small and medium enterprises, the commission said there were reasons to believe that the growth of the sector was 'hampered' by the lack of a sufficiently dynamic financial sector.