CEA Nageswaran calls for capex push amid EV growth momentum

Chief economic advisor V Anantha Nageswaran on Saturday encouraged the corporate sector to think over its choices, noting that even as the average profitability of the top 500 listed companies rose by around 31% annually for five years after the Covid-19 outbreak, their investments continue to disappoint.

Many companies and entrepreneurs are choosing to accumulate cash profits and possibly set up family offices elsewhere, rather than investing in real assets, he said at a conference in the national capital. “No matter how difficult the operating environment is, which is often cited as an excuse (to hold back investments), this has not hindered their profitability after the pandemic,” he said.

Also Read: India must create strategic buffers to weather ‘toughest’ energy shock: CEA Nageswaran

CEA emphasized that while companies in a very small number of countries may have made such profits after the pandemic, the regulatory environment in India has only improved. “Despite this, if there is reluctance to invest in the field, then there is also a significant reason for the corporate or private sector to reflect on their own priorities,” Nageswaran said, urging India Inc. to do its bit to encourage a revival of broad-based investment amid external headwinds.

Underinvestment by the private sector in the wake of the pandemic has forced the public sector to shoulder the heavy burden of boosting growth. It flagged India’s $140 billion annual goods trade deficit after excluding oil, precious stones and jewels (for which dependence on imports is natural) and highlighted the cost of below-average investment by domestic companies because they fail to create the capacity to take advantage of domestic opportunities.

Diversify the Supply Chain
The CEA said the gap between real effective exchange rates between the rupee and the yuan has narrowed, which will help the competitiveness of Indian firms against their Chinese rivals. “Importing from China now is relatively expensive, while exporting should be relatively cheap, all else being equal. So that’s a good reason to consider diversifying your supply sources away from China.”
Also Read: CEA Anantha Nageswaran flags energy growth risk story

In this context, he said, Indian industry has the opportunity to benefit from the country’s free trade agreements with key economies and increase exports. Nageswaran emphasized that India needs to create strategic buffers for essential commodities, given the energy shock it faces due to the West Asian conflict. The war-induced rise in global oil and fertilizer prices will make it difficult for the Center to meet its fiscal deficit target for FY27, he said, adding that the impact of sub-normal monsoon rainfall and high energy prices could lead to a potential rise in inflation.