Policymakers must decide if public sector investment should be scaled up, or should the private sector take over as the main engine of capital formation in the economy, said Chief Economic Advisor V Anantha Nageswaran on Friday.
“It may not be necessary or healthy for the public sector to keep expanding capital investment at the same pace. Capital expenditure has to increase, but not at the same pace because not only should we not be crowding out the private sector, but also ensuring that the combined investment spending by the public and private sector should not drive up the cost of capital too much,” Nageswaran said at the Confederation of Indian Industries’ Global Economic Policy Summit.
“The public sector will have to decide at some point whether to continue at the same pace, or allow the private sector to take over as the primary engine for investment in the economy, which we have been waiting for,” he said.
Public sector meant central and state governments and state-owned enterprises. Nageswaran said that in the last 10 years, public sector capital investment has increased from Rs 6.8 trillion to Rs 21.2 trillion, at a time when the financial sector companies were still repairing their balance sheets.
The CEA’s remarks come ahead of the 2023 Union Budget, which Finance Minister Nirmala Sitharaman is expected to present on February 1. Nageswaran will present the 2022-23 Economic Survey on January 31.
In pre-budget consultations, industry bodies have told Sitharaman that because of the global macro-economic situation, the private sector may still not see a complete revival of capital expenditure, and hence urged the centre to continue increasing capex in order to support infrastructure investment.
Nageswaran said that he had decided to consult an artificial intelligence app to help prepare his remarks for the CII event. He said he had asked the app how does one address the employment problem in India.
“The reply was that you have to continue to invest in infrastructure. It will create jobs directly, but because it lays the foundation for further capital formation in the economy, there will be indirect jobs created as well,” he said.
The CEA said that while the government had done well to start divesting stake from insurance behemoth LIC Ltd, there was another ‘LIC’ which continued needing divesting from. “This LIC is the Licensing, Inspection and Compliance regime. While investment, regulation, easing rules for business are all there, divesting from this LIC will create trust in the economy, and that trust can take us from 7 percent growth to 10 percent growth.”
He also said that the private sector should continue doing whatever it can to ensure that the micro, small and medium enterprises are paid on time.