India’s growth can be faster if private capital formation kicks into higher gear: CEA

“There is no growth without productivity, there is no productivity without a healthy population and there is no good health without healthy eating and physical activity. And that is the lesson that we need to tell our younger generation: less screen time, less junk food and more physical activity. That is the message for 2024 and that is the most important revving up instrument or device which we could use for the growth engine,” he said.

Pointing out that the public sector has done its part, the CEA said private capital formation is the most important catalyst to rev up the growth engine, underlining that there are enough resources with the private sector, with a positive financial balance of the private corporate non-financial sector.

“Because of Covid, the war in Ukraine, the private sector has been cautious but unless investment activity leads to employment generation, which in turn, leads to income growth which in turn will lead to sustained consumption, the growth engine will not be revved up. Consumption is a consequence of economic growth, consumption is not the cause for economic growth. To cause economic growth to happen, we need to have investment spending, which in turn leads to other positive benefits such as employment and income and eventually consumption growth. I think having done the balance sheet repair, having shored up the financial position, having seen capacity utilisation rates hit levels which in the past have necessitated additional capacity expansion, private capital formation is the most important catalyst to rev up the growth engine. The public sector has done its part and it will continue to do so,” Nageswaran said at a session on ‘Revving up the World’s Growth Engine’ at Ficci’s 96th Annual General Meeting.

He said the government has contributed to making it possible and conducive for the private sector to now step up to the plate and carry the baton along.

“We have to be nimble. We can’t wait for the blue skies to arrive before we take to the skies. In other words, we have to accept uncertainties as a given. And in fact the more the private sector begins to act in terms of putting capital to work, the lesser will be the uncertainty. In other words, the investment activity that we undertake will make a big contribution to dissipate the uncertainty rather than waiting for it to dissipate first before we begin to invest,” he said.

The remarks by the CEA come in the backdrop of India’s GDP growth posting a more-than-expected 7.6 per cent rate in the second quarter of July-September. Much of the push to the country’s growth came from government-led consumption and expenditure, especially on account of capital expenditure even as there was moderation in the pace of private final consumption expenditure.

The CEA highlighted the measures taken by the government in terms of creating infrastructure, both physical and digital, facilitating ease of doing business, re-capitalising the banks and liberalising many sectors of foreign direct investment by putting them on automatic route, announcing the production-linked incentive schemes to position India in the global value chain and inspite of the conflict in Ukraine, making sure that energy availability did not get affected in India, and keeping the Budget assumptions in the last 4-5 years as conservative and realistic such that the financial markets did not add a risk premium to India’s cost of borrowing in spite of the Federal Reserve hiking interest rates by 5 percentage points, and the spread between the Indian government’s cost of borrowing and the US government’s cost of borrowing getting narrowed.

In terms of instilling confidence in the private sector, the CEA said the government had reduced the corporate tax rate in 2019, and made it lower for those who set up new units. He added that structural challenges are being taken care of by the government so the choke points for the private sector are more psychological than real. “There are structural challenges or issues that are being addressed and will continue to be addressed which is to say that the infrastructure investments will have to continue and compliance, regulations wherever necessary, while much has been done to make it easier, there is still a lot of work to be done. And we also need to ensure that we get access to critical technologies and raw materials and resources etc from the developed world in some areas especially energy transition and making energy security a continuing reality for India. These are the structural issues to be addressed. And the track record of the last eight years tells us that these challenges will be addressed and will be taken care of as the government has done in the last 8-9 years in terms of infrastructure creation, easing business conditions etc. So therefore the choke point, I would submit, is more psychological than real,” he said.