Private sector can itself create the demand it is looking for, says CEA Nageswaran

Chief Economic Adviser V Anantha Nageswaran

Amid concerns that investments from the private sector have been lagging due to concerns around poor demand, Chief Economic Adviser V Anantha Nageswaran said that Indian industry can itself create the demand conditions it is looking for by hiring and paying more.

“What they need to realise that though usually investments depend on demand visibility, but investments by the private sector can itself create the demand visibility through investments leading to more hirings, hiring leading to more compensation, compensation leading to more demand, demand leading to more investments,” Nageswaran told Moneycontrol in an interview.

The Economic Survey for 2024-25 authored by Nageswaran and his team in the finance ministry’s economic division was tabled in the Parliament on January 31.

Though, Nageswaran said that the private sector has not been on the sidelines when it comes to investment, he acknowledged that the rate of growth has been somewhat slower than desired levels.

“It is not entirely true that the private sector has been on the sidelines. It is just that the rate at which they are increasing their investments is somewhat slower than what we would like it to be or somewhat slower than what we experienced in the first decade of the Millennium,” he said.

Nageswaran explained that private sector needs to think about how it can create the very demand conditions it is looking for in order to undertake capital formation.

The Economic Survey for 2024-25 has highlighted the need to come up with new ways to increase private sector financing in the infrastructure sector, and also tap new avenues to mobilise resources.

"Quite clearly, public sector efforts cannot fully meet these requirements. There are binding budget constraints to the different tiers of government. Private participation should accelerate in many critical infrastructure sectors," the Survey said.

It added that not only will the central government need to come up with policy interventions to boost private capital expenditure but will also need support from the states on the issue.

India invested a total of Rs 53.9 lakh crore on infrastructure between fiscal years 2020-2024. In the current financial year, capital expenditure witnessed a slowdown primarily during the first quarter of the fiscal due to the model code of conduct during the general elections and an unusual monsoon season.

As per the latest available data, capex spending was at Rs 6.9 lakh crore or 61.7 percent of the budgetary goal of Rs 11.1 lakh crore, compared with 67.3 percent spent during the April-November period last fiscal.