On September 15, 2022, Finance Minister Nirmala Sitharaman flagged concerns about sluggish corporate investment, despite the government’s pro-business moves like the reduction in corporate tax, which was effected in 2019.

The government had lowered the rate for existing companies to 22% from 30% and for new manufacturing companies to 15% from 25%. Despite the support, the FM complained the industry is like “Hanuman” and that it needed to be reminded of its inborn strength.

The Economic Survey 2023 also sounds the same worries about private investments, which are essential for sustained growth and it accounts for about 75% of total capital formation in the economy.

“The private capex is imminent with the strengthening of the balance sheets of the corporates and the consequent increase in credit financing it has been able to generate,” the survey pointed out. It also said the “private capex soon needs to take up the leadership role to put job creation on a fast track.”

Toeing the government’s line, the country’s leading corporate houses like Tata, Reliance Industries, Aditya Birla and Adani have already announced their investment plans for the next 5-8 years. But it is clear from the Survey the government is looking for participation from companies across size categories to boost the investment cycle. “On current trend, it appears that the full year’s capital expenditure budget will be met,” it added.

According to the Survey, while an increase in export demand, rebound in consumption, and public capex have contributed to a recovery in the investment/manufacturing activities of the corporates, their stronger balance sheets have also played a big part equal measure to realising their spending plans. “As per data on non-financial debt from the Bank for International Settlements, in the course of the last decade, Indian non-financial private sector debt and non-financial corporate debt as a share of GDP declined by nearly thirty percentage points,” it said.

Budgeted capital expenditure rose 2.7 times in the last seven years, from FY16 to FY23, re-invigorating the capex cycle. Structural reforms such as the introduction of the Goods and Services Tax (GST) and the Insolvency and Bankruptcy Code (IBC) enhanced the efficiency and transparency of the economy and ensured financial discipline and better compliance, the Survey added.

The capital expenditure (capex) of the central government, which increased by 63.4% in the first eight months of FY23, was one of the major growth drivers of the Indian economy, says the report. “The capex thrust in the last two budgets was not an isolated initiative meant only to address the infrastructure gaps in the country. It was part of a strategic package aimed at crowding-in private investment into an economic landscape broadened by the vacation of non-strategic PSEs (disinvestment) and idling public sector assets,” the survey said.

Another opportunity offered to the private sector is through the Production Linked Incentive (PLI) schemes. The government has introduced the PLI schemes across 14 categories, with an estimated capex of ₹4 lakh crore over the next five years, to plug India into global supply chains. “Investment of ₹47,500 crore has been seen under the PLI schemes in the FY22, which is 106% of the designated target for the year. Production/sales worth ₹3.85 lakh crore and employment generation of 3 lakh have been recorded due to PLI schemes,” the survey said.

According to the Economic Survey tabled in the Parliament, the projected GDP growth rate is in the range of 6 to 6.8% for 2023-24, as against a projected growth of 7% in the current financial year. The Survey said the country’s optimistic growth forecasts stem from a number of positives like the rebound of private consumption, given a boost to production activity, higher capex, near-universal vaccination coverage enabling people to spend on contact-based services, as well as the return of migrant workers to cities to work in construction sites leading to a significant decline in housing market inventory, the strengthening of the balance sheets of the corporates, a well-capitalised public sector banks ready to increase the credit supply and the credit growth to the micro, small, and medium enterprises (MSME) sector to name the major ones.

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