Economic Survey: Government has paved the way, private sector must step up on capex: Economic Survey

New Delhi: It is time for corporate India to take the baton as government capital expenditure has boosted the economy’s productive potential, an economic survey has said, urging the private sector to step up and invest. The survey cited data that showed private sector capital investment had lagged behind.

The private sector’s gross fixed capital formation (GCFC) in machinery and equipment and intellectual property products grew by a combined 35% in the four years to fiscal 2022-23. However, its GFCF in “dwellings, other buildings and structures” grew by 105% during the period, it said.

“This is not a healthy mix,” wrote Chief Economic Adviser V. Anantha Nageswaran in the introduction to the study.

The study found that the reason for fewer high-quality formal jobs in these segments is the sluggish approach of India Inc. companies.

The slow pace of investment in these segments will set back India’s efforts to increase the share of manufacturing in gross domestic product, it said.

“Government economists may be worried as numerous policy interventions like production-linked incentives (PLI) to boost local manufacturing have not yielded optimal results,” said NR Bhanumurthy, professor at the National Institute of Public Finance and Policy.

The Economic Survey estimates that the Indian economy needs to generate close to 78.51 lakh non-farm jobs annually to meet the needs of the growing workforce.

However, in order to create so many jobs, it is necessary to ensure conditions for faster development of productive jobs outside agriculture, especially in organised manufacturing and services, while increasing productivity in the former.

“Complementary reforms are needed in the services and regulatory framework of the country to increase production and create employment. Speedy filling of vacancies in regulatory bodies is one such necessary exercise that will go a long way in improving the functioning of businesses in the country,” Bhanumurthy added.

The study shows that the accumulation of capital in the private sector, which was hampered in the second decade of the last century by balance sheet problems, has started to recover after the COVID-19 pandemic.

There is a need to improve private sector participation in financing infrastructure projects, the study noted. The addition to infrastructure stock in the last five years has been mainly due to public sector financing, it said, adding that private sector participation is not at the desired level.

The focus now is on implementing measures to ensure that non-residential private sector investment (including hardware, construction, software and R&D) is on a sustainable footing so that it can drive efforts to increase investment to 35% of GDP.

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