Economy
Budget set path for secular growth; mid-size firms must now step up: Assocham
Summary
- The 100 to 200 companies just below the 10 biggest ones must increase their investments to further accelerate India's economic growth, boost consumption and raise employment, Assocham president Sanjay Nayar said.
New Delhi: The Union budget for FY25 shows the government has chosen a longer but more sustainable route for secular economic growth rather than a short-term consumption stimulus that could fizzle out, Sanjay Nayar, senior banker and president of industry chamber Assocham told Mint in an interview.
Nayar added that the 100 to 200 companies just below the 10 biggest ones must now step up their investments to further accelerate India's economic growth, boost consumption and increase employment.
India should aim for 8-10% economic growth over the next decade, he said. Assocham for its part is studying the cost of doing business to identify specific challenges that hinder the growth of small and medium businesses, and will share these with the commerce ministry, he added.
Beyond the top 10
Nayar said there were signs of green shoots in private capex, adding that when capacity utilisation crosses 78-80%, companies double down on investments.
He said, “Indian businesses must be enthused, and the animal spirits have to come back, pushing investments across sectors. At the same time, we have to start looking beyond the top 10 groups in the country. An investment push has to also come from the next 100-200 companies.
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“We have some large conglomerates, but we also have a large base that needs to be engaged. The final frontier is small and medium enterprises, which have to start finding it easy to build capacity and hire more people. Ultimately, they are large job creators."
Official data showed that gross fixed capital formation (GFCF) – investments in factories, plant and machinery by private non-financial corporations – has recovered after contracting in pandemic-hit FY21.
GFCF by private non-financial corporations stood at ₹19.35 trillion in FY23, clocking annual growth of 6.4%, according to data from the ministry of statistics and programme implementation. This was a little more than a third of overall GFCF by the government, private companies and households. The figure for FY24 will be available early next year.
Sustainable growth path
The government's plan to help businesses, especially small and medium ones, through various schemes, providing them cover up to ₹100 crore through the self-financing guarantee fund, and doubling the limit of Mudra loans to ₹20 lakh will encourage job creation, Nayar said.
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“The alternative was to provide a big consumption stimulus, but this often peaks and fizzles out since it is cyclical and doesn't sustain. We saw that in the global financial crisis. For sustained economic growth, per-capita gross domestic product has to go up so that there's a secular uptick in disposable income, leading to higher consumption. A direct consumption stimulus is always short-lived," he added.
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The government has focused on macroeconomic stability and fiscal prudence in its management of the economy, while stepping up capital expenditure to build infrastructure and attract private investments, Nayar said.
“Policy continuity attracts investments. The corporate tax has already been lowered, making India more competitive. Ease of doing business has improved over the years and ministries are making concerted efforts to enhance it further," he added.
“Hopefully, everything will fall into place, and you will find it easier to invest across sectors. India should be shooting for 8-10% real GDP growth over the next decade," said Nayar.
