Corporate sector needs to invest more to rebalance economy: CEA

Rebalancing of the Indian economy as a manufacturing and investment destination can be achieved if the Indian corporate sector invests their resources, rather than conserve them amid an environment of tepid demand, Indian government's chief economic advisor V Anantha Nageswaran said on Thursday.

Speaking at CII's Global Economic Policy Forum 2023, Nageswaran said the Indian corporate sector has to accept uncertainty as a given factor for the rest of the decade and start to invest.

"Waiting for demand to arise before they start investing will delay the onset of such demand conditions happening," he said.

"Investment leads to employment, income generation, consumption and savings is recycled into investments, so the more the corporate sector delays its investments, the virtuous cycle of employment generation, income growth, and consumption growth leading to more savings will not materialize," he added.

As things stand, private investments have not rebounded to their pre-pandemic levels. There has been a lack of job creation, while investments have been limited to infrastructure and consumer sectors. Even the consumption recovery has been uneven, with rural demand lagging its urban counterpart.

The slowdown in investment comes amid a decelerating global economic growth, which hasn't recovered to its pre-pandemic levels. Challenges including monetary policy tightening in advanced economies, and commodity shortages due to conflicts in the Middle East and Ukraine further threaten to derail prospects of economic growth.

"The onus of ensuring that the rebalancing happens, as it did in the first decade of the millennium, is to be shared between the non-financial private corporate sector and financial sector, in terms of providing the resources," Nageswaran said.

"The corporate sector without even depending on financial resources from the capital market or financial institutions have enough of their resources to be able to make these investments and make the rebalancing happen," he added.

Interestingly, India is expected to record the fastest growth among major world economies during FY2024. 

The Indian economy expanded at 7.8% in the first quarter of the current fiscal year, and 7.6% during the next quarter. 

The Reserve Bank of India’s (RBI) forecast for 2023-24 growth is 6.5%, while others like investment bank Goldman Sachs see a more moderate 6.2% growth.

According to the International Monetary Fund (IMF), the Indian economy will outperform major economies like Indonesia (4.93%), China (4.9%), the US (2.93%), Japan (1.2%), France (0.69%), the UK (0.62%) and Germany (-0.37%) in the September quarter (Q2, FY2024).

Nageswaran said improving exports is 'easier done than said', adding for this to happen either the overall market size has to increase, or India's market share in the export market has to see a rise. 

Relying on increasing our export market share, amid a global economic slowdown, is not going to be easy, he said. 

"This will bank on our competitiveness, which stems from multiple factors including energy security," Nageswaran said.

"When China embarked on export-laden growth there were many things in its favour, for instance, the world wasn't as concerned about burning fossil fuel as it is today, and the global economy was in a far better state," he said. 

"The important thing that makes me optimistic is that the rebalancing will happen as that balance sheets have been repaired, both in the financial and corporate sectors," he added. 

As things stand, India's merchandise trade deficit widened to a record high in October to $31.46 billion with imports at $65.03 billion and exports at $33.57 billion, according to data from the ministry of commerce and Industry.

During October 2022 the trade deficit stood at $26.31 billion, with imports standing at $57.91 billion and exports at $31.60 billion. During September 2023, merchandise exports were $34.47 billion, while imports stood at $53.84 billion.