Public capex can’t keep rising at same pace: CEA V Anantha Nageswaran | The Financial Express

Public capex can’t keep rising at same pace: CEA V Anantha Nageswaran

Anantha Nageswaran asks private sector to be main engine of capital formation

Public capex can’t keep rising at same pace: CEA V Anantha Nageswaran
Speaking at a CII event, he said the combined capex by the Centre, states and public sector enterprises have jumped 3.5 times over the last 10 years to hit Rs 21.2 trillion a year now.

Ahead of the Budget for FY24, chief economic advisor V Anantha Nageswaran on Friday said the impressive pace of growth in capital spending by the public sector in recent years can’t be sustained for long, as he exhorted the private sector to step up and be the “primary engine” of capital formation in the economy.

Speaking at a CII event, he said the combined capex by the Centre, states and public sector enterprises have jumped 3.5 times over the last 10 years to hit Rs 21.2 trillion a year now.

“In the decade when the non-financial corporate sector and the banking system were repairing balance sheets, the public sector took over and kept up economic growth throughout the second decade of the millenium and it has continued well into the current decade as well,” he said.

Also Read: First batch of supplementary demands for FY23: House nod sought for extra net spending of Rs 3.26 trn

The CEA’s observation came after finance minister Nirmala Sitharaman in September asked India Inc as to what was holding it back from investing in manufacturing when foreign investors had been bullish about India. She also wondered if corporate India, just like Lord Hanuman, needed to be reminded of its immense ability.

While the government had slashed the corporate tax rates in 2019 in a bid to woo investors, private investments are yet to turn the corner meaningfully and are, at best, limited to certain sectors, mainly due to uncertainties caused by the pandemic.

The CEA said the private corporate sector currently possesses a very healthy balance sheet. At the same time, profitability and the overall balance sheets of banks and financial institutions have improved, so they are ready to lend for any capacity expansion by the private sector, he said.

“Therefore, it may not be necessary or may not be healthy for the public sector to keep expanding capital investment at the same pace,” the CEA said.

Nevertheless, the CEA stressed: “Capital expenditure (by the public sector) has to continue to increase, but not at the same pace. This is because we should not only be not crowding out the private sector but also ensure that the combined investment spending by the public and private sector doesn’t drive up the cost of capital too much for the economy.”

So, there is a need to decide whether the public sector must continue to scale up its capex at the same pace or allow the private sector to take over as the dominant investor–something for which “all of us have been waiting”.

The private corporate sector capex rose to Rs 3.1 trillion in the first half of this fiscal, against Rs 2.4 trillion in FY22 in the same period of the pre-pandemic year (FY20). However, it’s still lower than the desirable level, as economic growth in FY20 stood at a meagre 3.7%.

The CEA’s statement comes just weeks before the Budget for FY24 is to be presented on February 1. Sources had earlier told FE that the pace of rise in the Centre’s Budgetary capex in FY24 could be lower than the 27% rise budgetted for FY23 (to Rs 7.5 trillion), thanks to a high base and limited capacity of departments and other relevant agencies to spend the substantially-elevated amount year after year. However, the targeted growth in the capex in FY24 will still beat that in revenue spending by a wide margin, as the Centre bets big on the former’s high multiplier effect.

Just like this fiscal, the enhanced capex outlay in FY24 could include the long-term interest-free loans to states for asset creation (the FY23 allocation stood at Rs 1 trillion), sources had said. As for the current fiscal, the finance ministry has already asserted that the capex target will be met.

In the aftermath of the pandemic, the central government raised its budgetary capex by as much as 27% on year in FY21, 39% (albeit including equity infusion into Air India Assets Holding) in FY22 and 27% (budgetted) in FY23–way above the increase in overall Budget size of the relevant years. It believed a sustained push to productive spending will spur economic growth, more so after the pandemic.

Its budgetary capex jumped 61% until October this fiscal from a year before to Rs 4.1 trillion. The jump was way above the full-year target of 27%, as the Centre wanted to frontload such spending to push economic growth. The growth in revenue spending, meanwhile, stood at 10% during this period.

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First published on: 10-12-2022 at 04:45 IST