Stating that private sector may at some point of time have to function as the primary engine of capital formation, Chief Economic Advisor V Anantha Nageswaran said government capital expenditure cannot keep rising at the same pace.
With less than two months left for the Union Budget for 2023-24, Nageswaran while speaking at the Confederation of Indian Industry’s Global Economic Policy Summit said that capital expenditure has to increase but it may not be healthy to increase at the same pace.
“The last decade was good in the sense that today if we are looking at 2023 to 2030, with the kind of balance sheets we had in 2012, we should be very concerned. But what we have now in the corporate sector are very healthy balance sheets, very healthy bottom lines, and a financial system – both banking and non-banking – that is repaired and ready to lend, and the corporate sector is ready to borrow, we see that in the credit growth numbers.”
“So therefore, it may not be necessary or may not be healthy for the public sector to keep expanding the capital investment at the same pace. Capital expenditure has to continue to increase, but not at the same pace because we should not only be not crowding out the private sector, but ensuring that the combined investment spending by the public and the private sector should not drive up the cost of capital too much for the economy,” he said.
The Chief Economic Advisor further said over the last decade, the total investment by the public sector including the Centre, states, public sector enterprises, and capital expenditure that is part of revenue expenditure has increased 3.5 times to about Rs 21.2 lakh crore from Rs 6.8 lakh crore in 2011-12. “So clearly, 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 millennium. And it has continued well into the current decade as well. So we need to obviously, at some point in time, decide whether we continue to scale up the investment at the same pace or allow the private sector to start functioning as the primary engine of capital formation in the economy, for which all of us have been waiting for,” he said.
The comments by CEA come after Finance Minister Nirmala Sitharaman in September had drawn parallel with the mythological character ‘Hanuman’ and urged the industry to step up its investments. In Budget for 2022-23, the Centre had set target for capital expenditure at Rs 7.5 lakh crore, up 35 per cent from the budget estimate and 24 percent higher than the revised estimate for 2021-22.
