Signs of private sector investment cycle unfolding, says CEA Nageswara

Chief Economic Adviser V Anantha Nageswaran on Thursday said there are signs of private sector investment cycle unfolding and sectors like steel and cement have reached a stage where greenfield investment will take place.

“We do see signs of corporate sector beginning to make investment. There are some new investment announcement,” he said at an event organised by CII.

Based on data available for the first six months of the last three years, he said, it was Rs 2.1 lakh crore in 2020-21, it was Rs 2.7 lakh crore in 2021-22 and Rs 3.3 lakh crore in 2022-23.

“So, it has been rising and once we get the full year data, the picture will be clear. We know that internal resource generation of the companies are at very high level. Therefore, they may not necessarily have to tap either the capital market or the banking channel,” he said.

Expressing optimism about private sector capital formation cycle in the country, he said, “we have been waiting for it. It’s already unfolding…it is unfolding at steady pace.” Capacity utilisation in some sectors like steel and cement has reached a point where greenfield investment have to happen, he added.

Observing that energy is an important driver of economic growth, he said, it is energy security that is coming under a lot of pressure thanks to geopolitical developments and climate change.

“If 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 2-3 years, it is energy security. We cannot completely swear off fossil fuels.

“We do have a target to balance the proportion of non-fossil fuels and fossil fuels in our energy mix in terms of installed capacity by the year 2030… It is equally important we understand that there are important roles for fossil fuels – if not coal, then for gas, etc,” he said.

And therefore, he said, if the financial industry completely avoids funding fossil fuel-based power generation projects, then economic growth will suffer.

“And if we place economic growth in jeopardy, then the generation of fiscal and private sector resources will also be in jeopardy and therefore our ability to provide the right mind of financing for dealing with climate change will also be in doubt,” he said.

Asked about interest rate outlook, Nageswaran said, “I have always said in my last 16 months in this job that I don’t comment on (Indian) monetary policy in public. So I am not going to change that stance.” With regard to US Fed, he said, they have given the indication that they would be on pause in June.

“I also don’t believe that in the US case, rate cuts are imminent. I don’t think so. Unless of course there are further financial accidents like we saw in March and April because if you look at the macro data, they are still holding up pretty well. So I think stable for longer might be more likely than looser policy, but that’s my personal view,” he said.