Private sector capex will be key contributor to growth: CEA Nageswaran

Chief Economic Advisor V Anantha Nageswaran expressed optimism about India's growth potential on Thursday during a special interactive session organized by FICCI.

"We have had two successive good years, strengthening the recovery from the pandemic-induced contraction," said Nageswaran.

He explained the lower growth figures reported in the third quarter of FY23 were due to base effect adjustments, not a loss of economic momentum.

Nageswaran also provided an outlook for FY24, projecting real GDP growth of 6.5 per cent, a figure supported by both the Ministry of Finance and the Reserve Bank of India.

"The risks surrounding this number are evenly balanced, suggesting a strong likelihood of achieving this growth target," said the Chief Economic Advisor.

A pivotal aspect of his talk was India's anticipated rise in the global economy. "We were the 10th largest economy in 2014, and we expect to become the third-largest economy in 2027," he stated. He emphasized that this progression requires the nation to continue to "do the right thing," he added.

Nageswaran mentioned that India's contribution to global GDP growth has risen six-fold since the turn of the millennium. He said, "India is set to become the third-largest contributor to global GDP this year."

Addressing the impact of the pandemic on private consumption, Nageswaran observed that despite setbacks, the trend line for private consumption has caught up to pre-pandemic levels.

Nageswaran highlighted the robustness of the agriculture sector, emphasizing its readiness to handle potential supply disruptions. CEA also emphasized the economy's robust expansion, driven by strong growth in the industry, services, and construction sectors.

He highlighted companies' confidence in expansion, supported by steel and cement production data, indicating a post-pandemic rebound in line with pre-pandemic trends, adding "There is confidence among the companies and firms and they are looking to expand."

"We do expect that capital expenditure by the Indian private sector will be an important contributor to growth in the coming years," he explained.

He acknowledged the concerns about rural consumption but highlighted a turnaround in the fourth quarter that has continued into the current financial year. Rural wages are rising at high single-digit growth rates, supporting rural consumption. Turning to the urban demand side, Nageswaran noted strong growth in passenger vehicle sales and new housing launches.

He further underlined the government's commitment to continue to be fiscally responsible while supporting the economic recovery, citing a declining fiscal deficit target from 5.9 per cent to an intended 4.5 per cent by FY26.

Nageswaran pointed to the digital transformation of India as a key driver of future growth. He showcased how India's digital infrastructure development through public-private partnerships is providing affordable and sustainable access to digital services for all, surpassing even the world's largest and most developed economies.

The CEA recognized that while the government is making strides in improving the country's logistics efficiency, the private sector must also invest in long-term research and development and quality improvement.

He also acknowledged the rising impact of India's startup ecosystem that is extending beyond the metropolitan areas, spurring entrepreneurship and generating employment.

For the medium term, the CEA stressed on the importance of energy security and the need for a managed transition away from fossil fuels. Furthermore, he stressed on the need for educational reforms to mitigate the impact of the pandemic on years of lost schooling and to harness the potential of India's demographic dividend.

Nageswaran concluded the keynote by highlighting the potential of increasing women's participation in the economy as a crucial contributor to India's economic growth.

On the occasion, G S K Velu, Chairman, FICCI Tamil Nadu State Council and CMD, Trivitron Healthcare Group of Companies, praised the Indian economy's resilience.

"India, with its 7.2 per cent GDP growth for 2022-23, is among the fastest-growing major economies globally, demonstrating significant resilience amid worldwide downturns," said Velu.