The reason why corporate investment isn’t picking up is not to do with limited supply rather with limited demand, said Sajjid Chinoy, Chief India Economist at JP Morgan.
Over the past decade, corporate investment has remained stable at about 12 percent of GDP and policies should focus on reviving corporate investment to boost economic growth, he added.
He added that most of the companies today have strong balance sheets, lower debt, and high cash flows. However, the problem today isn't about the financial health of these companies rather about ensuring these companies invest in growth rather than holding back, Chinoy said.
He added that just because companies are financially strong doesn’t mean they will automatically invest. “Companies will only invest if they expect good returns,” he said.
Chinoy was speaking at Samvad event held in Mumbai on January 10.
Chinoy said that corporate or private savings is not a problem. He said that if the current account deficit is 1 percent while the public sector deficit is at 7 percent, it tells that the private sector is swimming in savings. “There is a large savings surplus in the private sector which is getting offset by the public sector deficit imbalances,” he added.
A solution to converting this private savings to investments, he said, is to make tax policies for different asset classes neutral. So, there are similar taxes across all asset classes which encourage investments. “If and when a capex cycle starts, and if the corporate bond issuances pick up, the policy on tax should be neutral so Indian households can invest and their investments are not distorted by policy,” Chinoy said.
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