See pvt-sector capex picking up in H2FY23: CEA V Anantha Nageswaran

"Bank credit is beginning to pick up, especially in the micro, small and medium enterprises sector," Chief Economic Advisor (CEA) V Anantha Nageswaran said

Chief Economic Advisor (CEA) V Anantha Nageswaran said on Tuesday that the volatility in global crude oil prices due to the war in Europe and the US Federal Reserve’s (Fed’s) expected tapering and increase in interest rates are the two strong headwinds the Indian economy faces.
 
Speaking at an event organised by the All India Management Association, Nageswaran said he expects a revival in private-sector capital expenditure (capex) plans in the second half (H2) of 2022-23 (FY23).
 
“Bank credit is beginning to pick up, especially in the micro, small and medium enterprises sector. I think by the end of the second quarter or in H2, the private sector will pick up the capex baton and run with it,” he said. Since the pandemic flatlined the Indian economy in April-June 2020, the Centre has made public investment in infrastructure as the main plank of economic recovery. In fact, 2020-21, 2021-22, and targets for FY23 have seen substantial jumps in the Centre’s capex outlay, even as the private sector has been unable to scale up its investment plans.

 

For FY23, Finance Minister Nirmala Sitharaman has budgeted a capex target of Rs 7.5 trillion, of which Rs 1 trillion will go to states as long-term, interest-free loans for their capex needs.
 
“The robust state of the balance sheets within the private sector will enable the economy to weather the twin storms of geopolitics and Fed tightening. As we head into H2FY23, blue skies will reappear and we can look to a decade of India repeating in a more sustainable form the kind of high growth we experienced between 2003 and 2012,” he said.
 
Speaking about the Fed’s actions, the CEA said he was surprised at Fed’s hawkishness on rate hikes as inflation in the US hit a four-decade high in February.

 
“I was surprised at the extent of the hawkishness of the Fed in its projections. It remains to be seen whether the reactions of the markets will allow them to hike the Fed funds rate to 2.75 per cent. I am waiting to see the peak of this cycle. Two more reviews will give a clear picture,” he said.
 
The Fed in March hiked the key interest rate by 25 basis points — a first in more than three years — after keeping it near zero since the beginning of the pandemic, and said it would further raise rates in six consecutive meetings.

 
In response to domestic inflation pressures at home, the Reserve Bank of India (RBI) in its monetary policy review on April 8 announced it would withdraw its accommodative measures over a multi-year time frame, and placed inflation as a priority above growth.
 
The Consumer Price Index came in at 6.95 per cent in March — the third straight month that the headline inflation rate has stayed above the RBI’s medium-term target of 4 per cent (+/-2 per cent).
 
Nageswaran said if global crude oil prices remain above $100 a barrel in the first half of the current fiscal year, the Centre may have to revise its budget projections for FY23 on growth and subsidies, and share the burden with consumers and oil-marketing companies.

 
According to the Economic Survey, the country’s economic growth is expected to remain at 8-8.5 per cent in FY23, against a projected growth of 9.2 per cent in the previous fiscal year. Last week, the RBI slashed economic growth projection to 7.2 per cent, from 7.8 per cent estimated earlier amid volatile crude oil prices and supply-chain disruptions caused by the Russia-Ukraine war.