‘India should pursue investment-led growth’

  • Sanjay Nayar, banker and president of Assocham, says that India’s low per capita income places a limit on discretionary spending, which is why consumption is failing to take off.

Gireesh Chandra Prasad
First Published14 May 2024
Sanjay Nayar, senior banker and president of Assocham.
Sanjay Nayar, senior banker and president of Assocham.

New Delhi: India should pursue investment-led growth and take measures to attract more capital into the economy, which in turn would add jobs and spur consumption, says Sanjay Nayar, a senior banker and president of industry body Associated of Chambers of Commerce and Industry (Assocham).

Nayar, who is the founder and chairman of Sorin Advisors LLP, said that given India’s per capita income level, there is a constraint on people’s discretionary spending, which explains why the consumption lift that the economy needs is not felt in a big way. 

“Our demand will come back because we are a huge country. If we get our supply-side right, consumption will follow. India has to be investment-driven first, then consumption-driven. Our growth should be driven by higher investment spending—then consumption will fall in place automatically,” said Nayar.

India’s per capita income in FY24 stood at a little over $2,500—going by a nominal GDP of $296.5 trillion, a population of 1.4 billion and a rupee exchange rate of 83.46 against the dollar.

“The big contrast between India and the US on inflation is that theirs is driven by wages and over-employment whereas ours is driven by supply-side shortages. So for us, the answer is very clear,” Nayar said, arguing for more measures by the government to boost production. 

Growth on track

He said India’s economic growth now is quite robust in spite of global shocks but in the next phase of growth, the government cannot keep spending from the balance sheet. 

“You have to mobilize private savings, private capital expenditure, and the private sentiment has to come back, which I think is reviving. 

Demand is picking up. We see it in aviation, hospitality, telecom and financial services. A little bit of pickup is there in terms of the supply side, new capacities, new orders of planes, more equity being raised and more public offers. 

That's what we need to encourage and crowd in big time. That is happening but maintaining that focus after the elections is what we need to sustain the 7.5-8% growth rate because one cannot keep depending on government balance sheet to keep spending,” said Nayar.

Nayar said household savings should flow more into Real Estate Investment Trusts (REITS) and Infrastructure Investment Trusts (INVITS), than into mutual funds.

“Today, household savings are mostly going towards capital markets. We have created new instruments like REITs and INVITs which have really worked and are crowding in retail savings into infrastructure and real estate, which is in a way very good becuse you're bringing the savings towards the real sector and then whatever saving-investment gap you have, obviously, India is a great destination for foreign capital,” said Nayar.

 Nayar said India has to explore mobilzing more foreign direct investments (FDI). “Now, geopolitical uncertainties and the opportunities at home in capital exporting nations are having a bearing on FDI inflows. Hopefully, after the elections, we will see India again as a big market for big capital. They will come into sectors like infrastructure. We need to reactivate the asset monetisation plan which includes highways, roads, transmission grids, oil and gas pipelines, railway stations etc.,” said Nayar. These operating assets can attract a lot of FDI, he said. 

With long-term lease of these assets, the government does not lose the title. “We need to get that going very quickly,” he said.

 Nayar also said that 7-8% economic growth will continue for the next two to three years once these measures are taken and private sector investment and FDI inflow pick up further. 

Also Read | ‘The national elections haven’t slowed down the Centre's capex plan in Q1'

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