Asserting that the economic situation is likely to improve during the year, Chief Economic Adviser V Anantha Nageswaran on Tuesday expressed hope that the private sector is expected to accelerate capital expenditure from the second half of the current fiscal.
The investment from private sector has been muted for past many years despite several measures, including corporate tax cut, taken by the government to reinvigorate it.
“Bank credit is beginning to pick up especially in MSME sector. Therefore, I think probably by the end of the second quarter or in the second half of the year, private sector picking up the baton of capital expenditure… sooner rather than later Indian private sector will pick up the capital expenditure baton and run with it,” he said at an event organised by AIMA.
Finance minister Nirmala Sitharaman in the Budget raised capex (capital expenditure) by 35.4 per cent for the financial year 2022-23 to Rs 7.5 lakh crore to continue the public investment-led recovery of the pandemic-battered economy. The capex for the year gone by was pegged at Rs 5.5 lakh crore.
An RBI survey has shown a jump in capacity utilisation by the industry from 68 per cent to 74 per cent, Nageswaran said, adding, the top four firms in several sectors are already operating over 80 per cent capacity.
He said, the government continues to balance short-term compulsion without losing sight of longer term aspiration, macroeconomic stability, prudent budgeting, transparency and emphasis on capital expenditure.
To provide relief to poor, the government has extended free food programme by another six months, which would cost the exchequer about Rs 80,000 crore, 0.65 per cent of GDP.
“The robust state of balance sheet within private sector would enable the Indian economy to weather the current twin storm — geopolitical and Fed Reserve tightening. As we head toward the second half of 2022-23, blue sky will reappear and we can look ahead to a decade of India repeating in a more sustainable form, the kind of high growth we experienced between 2003-2012,” he said.
The major headwinds at the moment are geopolitical situation and aggressive stance of the US Federal Reserve on tightening of monetary policy.
Talking about the focus area, Nageswaran said, asset monetisation and privatisation of PSUs are two key areas.
He also said that the Budget estimates are expected to hold good given the buoyancy in revenue collection and the budgeted 6.4 per cent fiscal deficit looks alright.
If the oil prices persist beyond USD 100 per barrel for a longer period, he said, probably GDP numbers may have to be revised downward.
As per the Economic Survey, the country’s economic growth is expected to remain in the range of 8 to 8.5 per cent in 2022-23 as against a projected growth of 9.2 per cent in the previous financial year.
Last week, RBI slashed economic growth projection to 7.2 per cent from 7.8 per cent estimated earlier amid volatile crude oil prices and supply chain disruptions caused by Russia-Ukraine war.
Commenting on the downward revision of GDP growth forecast by RBI to 7.2 per cent, CEA said that RBI has been realistic in bringing down the forecast and because of that further downside from the revised number is limited.
Regarding the possible revision in GDP forecast of the Economic Survey, he said that it is premature to revise the forecast as the financial year has just begun and the assumption of average oil price at USD 70-75 for the year may still hold.
However, if oil price remains above USD 110 for a quarter or two, there may be a need for burden sharing. He said that the government’s approach is to provide targeted relief to the poor instead of omnibus tax reduction, he added.
Considering the possibility of an excise cut on oil, he said that the impact could be 0.2-0.4 per cent of the GDP depending on how soon or how much excise cut becomes necessary.