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Informist, Tuesday, Nov. 19, 2024

 

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--CEA Nageswaran: Slow urban demand may be seasonal, may not persist 
--CEA Nageswaran: Constraining credit growth may impact deposit growth too 
--CEA: Positives from Trump presidency may end up outweighing negatives 
--CEA: Need to resolve skewed capital versus labour income share 
--CEA Nageswaran: Fincl sector must have the capacity to fund economic growth 
--CEA: Wage growth in cos falling even as earnings growth remains high 
--CEA: Indian cos' growth aspirations limited by fear of stricter norms 
--CEA: High growth in export of goods to be challenging next 10 years 
--CEA: Hasty transition to non-fossil fuels may stress fincl system 
--CEA: US president-elect Trump's tariff policy may impact energy prices 
--CEA: Policies on energy reforms key to maintain 7% medium-term growth 
--CEA: Energy prices crucial to sustain growth of 6.5-7.0% 
--CEA: Very important to keep energy prices affordable in India next 4 yrs 
--CEA: Exports need to be robust for sustainable growth over next 25 years 
--CEA: Need affordable energy prices for sustainable growth in next 25 years 
--CEA: Exports need to be robust for sustainable growth over next 25 years 
--CEA: High growth in export of goods to be challenging next 10 years

 

MUMBAI – It is premature to conclude that the slowdown in urban demand in the country is going to sustain or persist, Chief Economic Adviser to the Government V. Anantha Nageswaran said Tuesday. "Even if we don't have enough evidence to say that (slowdown) was extremely short-lived, certainly I will not be the one to make a pessimistic conclusion that the slowdown is something deeper," Nageswaran said at the 11th SBI Banking and Economics Conclave. 

 

In its Monthly Economic Review for September, the finance ministry had cautioned against slowing urban demand. "Urban demand appears to moderate due to softening consumer sentiments, limited footfall due to above-normal rainfall, and seasonal periods during which people tend to refrain from new purchases," the report had said. 

 

Nageswaran said the disparity between growth in corporate income and wages needs to be resolved because even as growth in profit of companies has been tremendous in the post-COVID era, barring the Jul-Sept quarter, the wage growth of employees has slowed down. "Post COVID we have noticed that profitability growth has been tremendous and that is why the market gets very disappointed with one-quarter numbers being on the lower side. Profitability has driven corporate sector growth and market valuations. But if you look at the wage growth in the BSE 3500 companies, it has come down from double digits, and therefore, the income shares between capital and labour have become skewed in the country once again," he said. 

 

The chief economic adviser said the skewness cannot be tackled by policy intervention as it may end up compounding the problem rather than solving it. "It is not an area where policy can or should intervene because sometimes there are problems where policy can actually compound it rather than resolve it. But it is a matter for society to arbitrate within itself, between itself to be able to figure out what is the right mix of income share between capital and labour because there are implications for purchasing power, aggregate demand growth, and social stability," he said. 

 

Nageswaran also spoke about how strict regulations at lower levels are keeping businesses from growing and affecting the mindset of owners. "We're talking about a world of 8 billion people and, we are a country of 1.4 billion ourselves, so in that world when we think of deregulation we have to think in terms of huge scale. 100 (the number of employees for regulations) has to become 5,000. Anything less than 5,000 workers should not be subject to these constraints and regulations. And this, by the way, has to happen both in the union and state governments. That kind of mindset shift has to happen. Because what has happened is because of these regulations, it has also killed the ambitions and aspirations of our businesses," the chief economic adviser said.

 

He said the shift in the mindset is very important if we have to grow beyond a certain point because we cannot be content in keeping our businesses small just to keep them below the regulatory radar. "The public sector in terms of policies and regulations, we have to let go, and in the private sector, we have to commensurately up our scale and ambition and aspirations to compete in the global space. Right now both of them are probably feeding off each other in the wrong direction," he said. 

 

Nageswaran said exports will be very crucial in sustaining growth over the next 25 years. He also emphasised that if India has to sustain a high growth rate in the next 25 years, the country will need affordable energy prices. "I think the next four years might be very important from the Indian standpoint in terms of keeping energy prices affordable and that's very critical. If we have to sustain growth rates of between 6.5-7%, having affordable energy prices is very important and a Trump presidency might actually make a big difference in that regard and probably going forward as well. So one of the very important pillars of being able to sustain high growth is energy affordability and availability," he said.

 

He also said that the policies on energy reform will be key to maintaining 7% medium-term growth. He added that if we make a very hasty transition to non-fossil fuels, then the financial system could come under some stress. When it comes to growth aspirations, internal as well as external policies on energy cannot be completely ignored, he said.

 

Donald Trump's election as the next US president may actually benefit India, Nageswaran said. "(Trump) Presidency may also be very useful from the Indian point of view, in terms of keeping energy prices affordable and, we need that to be able to grow, generate the resources to fund our energy transition, to invest in new technology, R&D, for carbon capture and storage. So, in that sense, the positives may actually end up being better than the negatives," he said.

 

On the recent jump in the headline inflation, the chief economic adviser said the inflation number continues to be influenced by a few commodities. "If you take out tomato, onion, potatoes, gold and silver, the headline CPI rate is 4.2%. You can do those calculations yourself. Tomatoes, onions and potatoes, gold and silver together account for more than one-third of the 6.2% inflation rate we have seen for October," he said.   

 

On the credit-deposit ratio, Nageswaran said deposit growth is a function of credit growth and constraining credit growth could impact deposit growth. "If we constrain credit growth too much, deposit growth will not necessarily grow. Deposit, in turn, is nothing but an expression of household savings, which in turn comes back to good credit growth and capital formation, employment generation. Therefore, constraining credit growth because deposit growth is not there is probably coming at the problem from the wrong approach," he said.

 

Nageswaran said that India's financial sector may have adopted some practices which are more suitable for developed economies and which may be restricting growth, like speculating on single stock futures and options. 

 

He said the flow of resources to the commercial sector in India as a share of nominal GDP needs to improve. 

"The peak was at 12% in 2019-20 with the kind of prices we had in NBFC space, housing, non-housing NBFCs. The banking sector is still not out of the doldrums. It reached a very low number of below 8% of GDP, and now it has come back to almost close to 12% of GDP which is a good thing," he said.

 

One needs to have a good idea of the investment requirement and what is the size of the flow of resources that are needed from the banking sector, non-banking sources and the equity market, Nageswaran said. End

 

Reported by Kabir Sharma and Kshipra Petkar

Edited by Saji George Titus

 

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