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Informist, Saturday, Jan. 11, 2025

 

NEW DELHI – Capital spending by both central and state governments, which helped revive economic growth in India after the COVID-19 pandemic, may be running into capacity constraints lately, Chief Economic Adviser V. Anantha Nageswaran said Saturday. As such, the onus is on the private sector to take the baton from the governments and invest more, the chief economic adviser said, while speaking virtually at an event in Mumbai.

 

The Centre relied on capital expenditure and its multiplier effect since the pandemic to revive growth. Centre's capex has risen to INR 11.1 trillion, as projected in the Budget for 2024-25 (Apr-Mar), from INR 3.4 trillion in FY20. Meanwhile, the private sector as a whole has refrained from investing substantially.

 

Nageswaran said it was important to make infrastructure creation attractive for the private sector as the fiscal balances of the governments were still on the mend after the pandemic. While the Centre may have brought down its fiscal deficit, the combined fiscal deficit of the Centre and the states is around 8% with the debt-to-GDP ratio at around 80%.

 

While the private sector has indeed ramped up its investments after COVID-19, the expectation is that spending is yet to reach the heights seen in the first decade of the millennium, Nageswaran said. "But that isn't going to happen. The first decade of the millennium was the apogee of the globalisation era," he added.

 

"Profitability as a percentage of GDP and the rate of growth of profits also in and of itself post COVID were all extremely good. And, therefore, there is a certain risk taking, which is what the private sector is all about. That needs to happen in terms of capital formation and hiring as well," Nageswaran said. 

 

The chief economic adviser said that the private sector needs to prioritise income growth in the labour market as households are an important source of funding investments once the current accumulated profits of recent years are exhausted. "And with the global environment being what it is, then we will have a challenge maintaining the investment rate in the 30s, let alone going into the upper 30s," he added.  End

 

Reported by Shubham Rana

Edited by Akul Nishant Akhoury

 

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