Private sector investment has begun to unfold at a steady pace backed by solid internal resources, Chief Economic Adviser V Anantha Nageswaran on Thursday said, adding that greenfield investments have become imminent in sectors such as steel and cement.
“Private investment is not just something that we are waiting for. It is unfolding, but unfolding at a steady pace, which is good enough for us,” Nageswaran said at an event organised by CII.
Based on data available for the first six months of the last three financial years, he said few thousands of private companies invested Rs 2.1 trillion in 2020-21, Rs 2.7 trillion in 2021-22 and Rs 3.3 trillion in 2022-23. “So, it’s been rising and once we get the full-year data we will get the picture.”
The internal resource generation of companies is absolutely at a very high level, he said. “Therefore, they may not necessarily have to tap either the capital market or the banking sector because they do have enough profitability to fall back on.”
The contribution of Gross Fixed Capital Formation (GFCF) to the growth momentum softened as its share in the real GDP moderated from 34.2% in Q2 FY23 to 31.8% in Q3, a four-quarter low.
The Centre has raised the capital expenditure target by 37% on year to a whopping Rs 10 trillion for FY24 to continue the public investment-led economic recovery post-pandemic.
The CEA was optimistic about the private sector capital formation cycle.
“It is happening and capacity utilization in some sectors like steel and cement has reached a point where greenfield investments have to happen,” Nageswaran said.
While energy is an important driver of economic growth, it is coming under a lot of pressure due to geopolitical developments and climate change.
“If there is a single-most important worry in my mind, for sustaining the growth rate that we have been able to achieve in the last 2-3 years, it is energy security. We cannot completely swear off fossil fuels,” he said.
“We do have a target to balance the proportion of non-fossil fuels and fossil fuels in our energy mix in terms of installed capacity by the year 2030… It is equally important we understand that there are important roles for fossil fuels – if not coal, then for gas, etc.”
Therefore, if the financial industry completely avoids funding fossil fuel-based power generation projects, then economic growth will suffer.
“And if we place economic growth in jeopardy, then the generation of fiscal and private sector resources will also be in jeopardy and therefore our ability to provide the right mind of financing for dealing with climate change will also be in doubt,” he said.