Chief economic advisor calls out the paradox of India's private sector investing abroad amid global uncertainties

New Delhi: The government’s chief economic advisor V. Anantha Nageswaran called on the private sector that’s been ramping up investments in overseas markets despite global uncertainties to also pour money into a country that’s outperforming several major economies: India.

India’s statistics ministry on Friday, presenting its second advance estimates for 2024-25, marginally raised its India GDP growth estimate to 6.5% from the 6.4% pace projected in its first advance estimates in January. India’s economy in nominal terms is expected to expand 9.9% this fiscal year, up from the 9.8% projected in January.

India’s presents “a very good economic case” for the private sector to ramp up investments in the country given its strong growth prospects, Nageswaran said at a briefing after the statistics ministry reported its second advance estimates.

Quoting data from the Reserve Bank of India, Nageswaran pointed out that outbound foreign direct investment (FDI) by Indians had picked up between April and December. 

RBI data showed outward foreign direct investment in equity from India in April-January at $11.3 billion, against $ 7.7 billion in the same period a year ago. The figure excludes outbound loans and guarantees.

“It is a bit of a paradox that uncertainties elsewhere isn’t really coming in the way of the Indian private sector increasing its outbound FDI,” Nageswaran said.

“And, therefore, all the more reason for the Indian private sector to invest in a country whose current growth record exceeds the growth performance of other economies and also whose prospects for continuing at this rate at the minimum of 6.5% is much better than it is elsewhere,” Nageswaran said. 

“So I think there is a case, a very good economic case, for the private sector in India to ramp up its capital formation so that the rate of capital formation to GDP rises from 30% towards the mid-30s.” 

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‘7.6% growth in March quarter not unrealistic’

The statistics ministry also raised its provisional growth estimate for 2023-24 to 9.2% from 8.3% projected in the first revised estimates. This is the highest in 12 years, except for the post-covid financial year of FY22.

For the December quarter, the statistics ministry projected India’s GDP growth at 6.2%. For FY23, the final estimates released on Friday showed a real GDP growth of 7.6%, revised up from the 7% reported earlier.

Briefing virtually from Cape Town, where G20 finance and central bank governors are meeting, Nageswaran said the statistics ministry’s figures augured well for the 6.5% economic growth for the current fiscal year and beyond.

Nageswaran also said that the required growth rate of 7.6% in the March quarter for India’s economy to achieve a growth of 6.5% for the full financial year was not unrealistic. But this, he added, would depend on supporting factors such as growth in merchandise exports, the government’s capital expenditure, and the spending seen during the period of Maha Kumbh Mela that concluded on Wednesday. 

“Now, that is where I would like you to note three things. One, the good performance of exports, basically both merchandise, non-petroleum, non-gems and jewelry, which is almost rising at 10% for the entire April to January period,” he said. 

“The second indicator I want you to keep in mind is the fact that public sector or union government capital expenditure, for the current financial year up to the end of January, is very much in line with the expenditure incurred in the previous financial year. Almost 75% have been expended as of end of January, which is the same as the number or slightly lower than the amount spent in the last financial year.”

The Maha Kumbh Mela effect

Nageswaran said that after the initial slow start to India’s economic growth in FY25 because of the national election held between April and June last year, the Union government’s capital expenditure had picked up steam. 

“The third dimension which makes the 7.6% growth for the fourth quarter realistic is the huge spending that has happened in January, spilling over into February,  associated with the Maha Kumbh. This can also add to GDP quite significantly from the expenditure side,” he said. 

“So in that sense, the implied fourth-quarter GDP growth number of 7.6% doesn't look that unrealistic. Even in the October to December quarter, India’s GDP number, while on the lower side compared to previous three years of data, it is still performing much better than many other peer group economies,” said Nageswaran.

After a dip in the first quarter of FY25 (April-June 2024) due to election-related uncertainties, private sector investment intention picked up in the second and third quarters, Nageswaran said, citing new projects announced by the private sector.