Energy security to be key for India’s growth sustainability: CEA

New Delhi: Energy security will be the single most crucial factor in sustaining India’s growth rate, said chief economic advisor V Anantha Nageswaran on Thursday at the CII annual general meeting, while highlighting two other factors of affordable financing for dealing with climate change and identifying green washing that the financial sector has to keep in mind in order to keep the economy competitive.  

“Energy is going to be the input it is an important driver for economic growth and it is the energy security that is coming under a lot of pressure tanks to geopolitical developments and tanks to climate change etc. India, if at all, there is a single most important worry in my mind for sustaining the growth rate that we have been able to achieve in the last two to three years. It is energy security,” he said. 

Nageswaran stressed on the importance of continued funding to the fossil fuels sector, even as we move towards a better balance of renewables in the energy mix. This, he said, was necessary to not jeopardize growth. He further advised that financial institutions should look at overall environmental costs while evaluating green projects, and to be aware of green washing, referring to projects which are not necessarily contributing to green in the economy but pass off as green projects and actually end up causing damage to the environment through their unintended consequences.  

He added that the financial sector must make investments towards digital transformation for not only financial inclusion, but also for credit assessment and credit judgment, in order to ensure and making sure therefore, that the next financial cycle in India which has just begun, lasts much longer than the previous financial cycles. 

“It's important to ensure that this cycle lasts longer and all the lessons learned from the previous cycle are not forgotten quickly. Therefore this is where we need to make sure that whatever technological investments we need to make and also in skill sets and capabilities that we need to make to ensure that credit judgment is done as scrupulously, as an as correctly as possible, more importantly, as realistically as possible,” he said.  

The CEA said in response to a question on the need for undertaking privatisation, that both privatisation and monetisation were important for unlocking the efficiency of assets. The need for keeping the momentum of privatisation was critical, he said, despite the ‘ebbs and flows’ for various reasons such as time-consuming processes or litigation challenges by stakeholders. 

He added that public sector banks were being capitalized and in good shape and were hence going to be more valuable, and stressed that adopting private sector mechanisms within the public sector framework would provide better outcomes and hence should be viewed in that light from a policy point of view. 

He also noted that as the investment cycle unfolds through foreign direct investment or domestic investment, India will see employment generation and income growth happening at different income strata, which in turn, will underpin the consumption growth. “I believe the consumption growth will be an offshoot of investment and income generation to this time, it will be more sustainable without necessarily jeopardizing our external balances,” he said.  

On capital inflows in the form of investments into various sectors, the CEA said that with $66 billion grossed in the first 11 months of FY23 compared to $84 in FY22, due to rising interest rates and geopolitical uncertainties, was not a bad performance. However, investor-state interactions, protection regimes, stability of tax policies, last mile connectivity and plug and play issues in the infrastructure on the ground, were areas that could be improved upon to bring more funds to the country.  

He added that companies moving to India was the beginning of a trend at a time when they were coming to terms with uncertainties in their own backyard. “I think their ability to focus and concentrate on this supply chain diversification including India in their list of countries will only get better,” he said.  

The CEA also backed the implementation of TCS on overseas credit card transactions and the ₹7 lakh exemption that followed, noting that the changes will ensure that common citizens and honest taxpayers are not inconvenienced. He was addressing the session on Building a Robust Financial Sector for a Competitive Economy. The other panellists at the session included Mr Leo Puri, Chairman of South & South East Asia, JP Morgan Chase, Mr Sivasubramaniam Ramann, CMD, SIDBI, Ms Kaku Nakhate, President and Country Head — India, Bank of America.