CEA urges India Inc to step up investments

Speaking at a Confederation of India Industry (CII) event, Chief Economic Advisor (CEA) V. Anantha Nageswaran said the corporate sector has been conserving its resources rather than investing despite the ‘repairing’ of the balance sheets of both the financial and the corporate sector.

“So what is holding it (corporate) back? It is easy to say that there is general demand uncertainty. Post Covid, recovery has started. But one thing we have to remember is that this decade is going to be the decade of uncertainty, whether we like it or not. So for us to wait for the uncertainties to abate or recede is like waiting for the waves to subside before taking a dip in the ocean. That is not going to happen,” he added.

The CEA further said that the drivers of economic growth have to rebalance between consumption and investment, as usually the consumption has to be a residual in the growth cycle. The balance of financial resources for the corporate sector which was negative for the corporate sector between FY2013 and FY2020 has turned positive in FY2021 (2.7 per cent), FY2022 (0.8 per cent) and FY2023 (2.1 per cent).

“[This] rebalancing has to happen in India. Waiting for demand to arise before they start investing will actually delay the onset of such demand conditions happening, because usually consumption has to be the residual. Investment leads to employment, which leads to income generation and which in turn creates consumption and then the savings are recycles back into the investment. So the more the corporate sector delays its investment, this virtuous cycle will not materialize,” Nageswarn said.

Nothing that the infrastructure gap, compliance burden, and policy provisions that prevent scale and the financial sector sector’s unwillingness to lend have been holding back the corporate sector from investing, the CEA said that the government is already addressing these issues.

“Initiatives such as Aatmanirbhar Bharat and performance-linked incentive (PLI) schemes, coupled with infrastructure spending and decriminalization of laws, are meant to create global champions in India,” he said. Nageswaran also called the retail investors to rebalance from speculation to real investment for the long term.

“Going forward it is important for the country to continue on the reforms path, focusing on the soft infrastructure which includes regulatory and institutional reforms. Modernization of institutions will help India achieve its own development goals. In the banking sector, greater participation of the private sector and strengthening governance of public sector banks should be prioritized,” he said.