India’s private sector capital expenditure is improving after several years and but the country must focus on internal drivers of demand as the world remains in a so-called poly crisis, according to the finance ministry’s chief economic adviser.
“We need to be cautious about the export outlook for us in the coming years and concentrate on internal drivers of demand,” V Anantha Nageswaran said on November 24 at the SBI Banking & Economic Conclave. “However, internal drivers of demand are looking constructive and positive, resilient. Reinvigorated investment cycle, strengthened financial system, and structural reforms are paving the way for medium term growth to continue.”
The government is expected to present its budget for the next financial year on February 1 amid expectations that it would continue with its infrastructure spending to boost medium-term growth. Poly crisis refers to the multiple simultaneous entangled crises that the world is facing right now.
Growth outlook
India’s growth could be closer to 6.5 percent in the remainder of the decade, the official said.
Economists’ projections for gross domestic product growth for 2022-23 of between 6.5 percent to 7 percent are reasonable, the chief economic adviser said, adding that risks to next fiscal year’s estimate of 6 percent growth are to the upside.
India will be among the fastest-growing economies this year despite global headwinds, including financial market volatility and sharp monetary tightening across the world.
The challenges to the growth outlook emanate from crude oil price spikes and risk aversion in financial markets, the official said.
The government must ensure that fiscal policy does not become a drag on the private sector by raising the cost of borrowing, the CEA had said earlier this month.
Capex
There are prospects for a capex cycle revival over the medium term, the official said on November 24, as manufacturing companies have deleveraged and capacity utilization is reaching levels which have in the past triggered expansion.
The central government’s focus on capex has also boosted the prospects for private sector investments, the official said.
The private sector capex could rise to as much Rs 6 trillion rupees this year, a substantive improvement over the past six-seven years, he added.
The country needs to focus on ensuring macroeconomic stability, direct tax reforms, further changes to goods and services tax, and completion of ongoing capex projects Nageswaran had said earlier this month.
External sector
There an uneasy truce in the global uncertainty right now but the possibility of monetary tightening for longer than expected cannot be ruled out, the CEA said on November 24.
The current account deficit, ballooned by the high crude oil prices and a global slowdown, should rise to 3 percent to 3.2 percent of gross domestic product this year, according to Nageswaran CEA said.
However, the Indian rupee has been one of the better performers and the country’s import cover remains comfortable, he added.
India's trade deficit widened to $26.91 billion in October, with exports in October contracting 16.65 percent on year, the first shrinkage in nearly two years.
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