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Tuesday, January 31, 2023

Weeks before Budget, CEA Nageswaran warns govt capex can’t keep rising at same pace

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CEA V Anantha Nageswaran (Illustration: Moneycontrol)

Capital expenditure by the public sector cannot keep increasing as rapidly as it has in recent years, Chief Economic Adviser V Anantha Nageswaran has said.

Speaking in the Capital on December 9 at the Confederation of Indian Industry’s Global Economic Policy Summit, Nageswaran said the last decade had seen the total investment by the public sector – including the Centre, states, public sector enterprises, and capital expenditure that is part of revenue expenditure – rise by three-and-a-half times to Rs 21.2 lakh crore. This, according to the government’s top economist, had helped growth at a time when the private sectors, including banks, were repairing their balance sheets.

“So we need to obviously, at some point in time, decide whether we continue to scale up the investment at the same pace or allow the private sector to start functioning as the primary engine of capital formation in the economy, for which all of us have been waiting for.”

“It may not be necessary or may not be healthy for the public sector to keep expanding the capital investment at the same pace. Capital expenditure has to continue to increase, but not at the same pace because we should not only be not crowding out the private sector but ensuring that the combined investment spending by the public and the private sector should not drive up the cost of capital too much for the economy,” Nageswaran added.

The comments by Nageswaran come at a time when expectations are that the Centre may keep pressing hard on the capex pedal in the Budget for 2023-24, set to be presented in Parliament on February 1 by Finance Minister Nirmala Sitharaman, who incidentally said last month that the government would “continue to keep pushing on capital expenditure”.

In its Budget for 2022-23, the Centre set itself a record capex target of Rs 7.5 lakh crore – up 35 percent from the budget estimate and 24 percent higher than the revised estimate for 2021-22 – which included Rs 1 lakh crore as a 50-year, interest-free loan to state government.

The government has insisted it will meet the capex target for the year, with latest data from the Controller General of Accounts showing capital expenditure crossed the Rs 4-lakh crore mark in October, taking the cumulative spending for April-October to Rs 4.09 lakh crore.

While the Centre hopes to crowd in private investment through its massive capex, industrialists remain skeptical – so much so that Sitharaman in September asked representatives of India Inc what was stopping them from investing.

“We will do everything to get industry coming and investing here. Give PLI (production linked incentive scheme)? We have given PLI. I want to hear from India Inc: what’s stopping you?,” the finance minister had asked.

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