Economic reforms may be the capex nudge India Inc needs

Finance minister Nirmala Sitharaman on Tuesday said it is time for Indian industry to look for bigger joint ventures around the world. (PTI)
Finance minister Nirmala Sitharaman on Tuesday said it is time for Indian industry to look for bigger joint ventures around the world. (PTI)

Summary

  • Finance Minister Nirmala Sitharaman has urged the corporate sector to increase private capital expenditure and participate in India's economic growth. Animal spirits have been missing too long.

Finance minister Nirmala Sitharaman urged industry to “join in a big way" the national effort to push India’s growth trajectory higher. Speaking at an event on Tuesday, she said that global investments are flowing to India and called on India Inc to look for greater joint-venture partnerships around the world. “You are here, you are watching the situation, watching the flow of investment capital," she said. 

The finance minister’s motive was evident: To get the private capital expenditure cycle going amid an elusive revival despite significant stimulative efforts. Fiscal policy has been doing the heavy lifting to drive the economy forward in the hope that private capital would join hands, but these hopes are yet to be realized. Sure, signs have emerged of corporates starting to dust off their expansion plans, but it’s unclear if “animal spirits" have begun to make a comeback. To be sure, when all else fails, nudges too can work as a tool of policy, and that is what the government seems to be hoping at the moment. 

Businesses, however, weigh their trade-offs quite finely. Unless they see demand rising more robustly and sustainably, they may be reluctant to expand capacity, which is far from exhausted in many fields. What may enthuse the private sector, perhaps, is another round of economic reforms. Sitharaman emphasized the government’s commitment to take them forward. Reforms would span various aspects of production, such as strengthening India’s digital infrastructure. Gross capital formation needs to go up for faster economic expansion.

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