V. Anantha Nageswaran, Chief Economic Advisor. File.
| Photo Credit: Bijoy Ghosh

Chief Economic Advisor V. Anantha Nageswaran on March 14 said he is “worried” over retail investors’ play in risky Futures and Options (F&O) segment in search of instant profits.

Speaking at a conference organised by capital markets regulator Sebi and NISM, Nageswaran said the biggest threat to sustainable capital formation and also sustainable economic growth is the “short-termism” in attitudes that the country is afflicted with.

Bemoaning the “furore” caused every time, there is a discussion on allowing corporate groups to promote banks despite the need for capital in a growing economy, Mr. Nageswaran said India Inc needs to reflect on the state of corporate governance practices and analyse its own conduct.

“The biggest risk for sustained capital formation and sustained economic growth is… in our short-termism,” he said.

He added that it is “puzzling” to see that a country otherwise blessed with a “deep spiritual heritage and wisdom” is actually interpreting mindfulness and living in the present in the wrong ways.

Mr. Nageswaran rued that even now, people are mentioning handsome growth in F&O volumes, despite SEBI’s own studies suggesting that 90% of trades in the riskier segment leading to losses for investors.

“Our actions make me worry that we may be interpreting mindfulness and living in the present as being myopic,” he said, making it clear that those two concepts stress on performing one’s duty and obligations without thinking about the fruits of the actions.

He said there is a need to change the outlook from a behaviourial perspective to achieve goals like long-term capital formation and growth.

Mr. Nageswaran rued that there is an “adversarial” attitude among many stakeholders when it comes to regulators, wherein people overlook the fact a regulator’s job is to have a long-term view of things and “providing counterbalance for instant gratification or myopia”.

“The underline focus that the regulators have is to ensure that we stay stronger for longer rather than get caught up in the immediate euphoria of our growth rates, market valuations,” he said.

Amid concerns that the activity in the F&O segment is fuelled by those seeking quick profits, he said the rising exposure of small investors in the segment “is a worry because we don’t want to go through boom and bust cycles again and again”.

Mr. Nageswaran said the economy is likely to grow 7% in FY25 as well, which will make it the third year in a row when the GDP has grown at over 7%.

Stating that capital formation and economic growth are interdependent, wherein one feeds into another, he said the only mantra for policymakers in such times is not to be conventional and described India’s prudent response to the Covid crisis as a case in point.

However, sustaining high growth performance has been “elusive” for India, which has had short periods of high growth that are typically followed by a long period of balancesheet repair, dud loan cleaning for lenders, etc, he said, reminding that “we need to keep in mind that China grew around double digits for three decades”.

“There is a need to ensure that we don’t indulge in excess lending or excess borrowing in the current cycle as well”, he said, adding that we need to make detailed plans with projections on growth, capital required, how it will come, how much as debt and how much as equity.

Banks also need to be adequately capitalised to fund the growth needs of the economy, and corporate ownership of banks will have to be allowed if the banks are to get the capital, he said.

“Why is it a taboo to even discuss corporate ownership of banks? The fact that a mere discussion of the idea of licensing of banks to corporate houses creates such a backlash or a furore is indeed a cause for reflection on the part of the corporates too,” he said.

“It is also unfortunately a reflection on the overall state of corporate governance in the country,” Mr. Nageswaran said.

Chief Economic Advisor V. Anantha Nageswaran attended the MMA Annual Convention in Chennai on February 10, 2024. with Balachander’s report
| Photo Credit: Bijoy Ghosh

India’s Chief Economic Adviser V. Anantha Nageswaran said a healthy population is the fundamental requirement in the push towards the country becoming a developed country by 2047.

“It used to be said of China, that it may become older before it becomes richer. It should not be the case that India becomes sicker before it becomes richer,” he said in his inaugural address at the Madras Management Association’s annual convention 2024 with the theme – India@2047-Leapfrogging to the Future.

“We all saw how our relatively unhealthy population became more vulnerable to the impact of COVID. And today when I see multinationals speak of India as the next frontier for processed food, It makes me worry,” Mr. Nageswaran said.

“You see sports personalities promote and become ambassadors of unhealthy foods. And if you look at data on child obesity, child diabetes is alarming as far as India is concerned,” he pointed out. A physically fit and mentally healthy population is required. Consumption of social media is antithetical to a mentally healthy population. The health aspect is a responsibility of businesses and individuals, he added.

Sustained growth

He said by the end of March 2024, India’s economy would have grown over 7%, which makes it three consecutive years of 7% growth post COVID.

The Reserve Bank of India estimates that for the year ending March 2025, India would be growing at 7%, which would make it the fourth consecutive year, Mr. Nageswaran said.

India is on track and well placed for 2047. “While we need to be optimistic and confident and have pride in our abilities in our endowments, realistic assessments of the challenges, realistic assessments of our prospects and the awareness and consciousness about our own cognitive limitations are required,” he said.

Note of caution

“In the past, after a few years of good growth, excess optimism takes over and we end up taking bad investment decisions, bad borrowing and lending decisions, which get into the spiral of overheating in the economy. Inflation shoots up, the current account deficit picks up and then we find ourselves going back to square one. That should not happen,” Mr. Nageswaran said.

He pointed out that skilling and creating employment opportunities are essential, especially in an economy that is going to be driven by technology with the advent of artificial intelligence.

Mr. Nageswaran said energy transition and determining the right energy transition mix amid the pressures exerted by the developed nations on developing nations on climate change, would be another key aspect.

He also pointed out that the commercial sector finds a regulator to be a nuisance. But they don’t realise that regulators are here not to post hurdles for growth and development, but to ensure that it continues uninterrupted much longer.

India will be one of the major economic powers, will socially continue to work towards a fair, just, egalitarian society and continue to be conscious of sustainability issues, Vini Mahajan, Secretary, Union Ministry of Jal Shakti, said in her keynote address. The Hindu Group was the media partner for the convention.

New Delhi:

Chief Economic Adviser V Anantha Nageswaran on Thursday said the economy is expected to grow at 6.5 per cent in the current fiscal notwithstanding deficient rains in August.

India recorded economic growth of 7.8 per cent in the April-June quarter of 2023-24 against 13.1 per cent in the year-ago period.

India’s economy in Q1 grew at the fastest pace in a year, on the shoulders of a boost in capital expenditure both at central and state levels, along with stronger consumption demand, especially in rural areas, and improved performance in the services sector, he said.

“There is momentum in economic activity in general and it is not driven by price-related distortions. Therefore our projections still are very comfortably placed at 6.5 per cent for the current financial year,” he said.

Risk is evenly distributed to around 6.5 per cent growth projection for FY2023-24, he said while briefing media following the release of first quarter GDP numbers.

Rising crude prices may warrant attention and prolonged geopolitical uncertainty and likely tighter financial conditions with continued monetary tightening can pose challenges to growth, he added.

With regard to price situation, Mr Nageswaran said food inflation is likely to subside with the arrival of fresh stock in the market and government pre-emptive measures.

Tomato prices are likely to decline with the arrival of fresh stocks by early September while enhanced imports of tur dal are expected to moderate pulse inflation, he said.

However, he said, August rain has been deficient and both the government and the Reserve Bank will be watching the food price developments.

During the first quarter, inflation stood at 4.6 per cent, lower than many developed and emerging economies.

“Food inflation was dominated by specific commodities. So, I think there is no real cause for concern that inflation would spike out of control and both the government and the Reserve Bank are taking measures in their respective domain to ensure that there is adequate supply and availability and that any price increase is moderated,” he said.

With regard to fiscal deficit, Mr Nageswaran said there is no threat to the 5.9 per cent fiscal deficit announced in the Budget despite the expected shortfall with respect to disinvestment.

To finance the fiscal deficit in 2023-24, the net market borrowings from dated securities are estimated at Rs 11.8 lakh crore. The balance financing is expected to come from small savings and other sources. The gross market borrowings are estimated at Rs 15.4 lakh crore.

In Budget Estimates 2023-24, the Finance Minister had that the total receipts other than borrowings and the total expenditure are estimated at Rs 27.2 lakh crore and Rs 45 lakh crore respectively. Moreover, the net tax receipts are estimated at Rs 23.3 lakh crore.

Continuing the path of fiscal consolidation, the government intends to bring the fiscal deficit below 4.5 per cent of GDP by 2025-26.

Talking about drivers of growth, Mr Nageswaran said investment and consumer momentum will underpin solid growth prospects over the upcoming year.

The private sector capital formation, supported by the government’s capex push, is underway, and that is a big plus for economic growth, employment and income gains for households, he said.

He further said that the new investment projects announced by the private sector have been highest in Q1 of FY2023-24 in 14 years.

The Union government’s single-minded focus on capital expenditure over the years has crowded in the private sector and it has rubbed off on state governments too..

Expansion of public digital platforms and path-breaking measures such as PM Gati Shakti, the National Logistics Policy, and the Production-Linked Incentive schemes would boost manufacturing output, he said.

A slowdown in the global economy and trade may moderate export growth, but it may be overall better for India, he added..

With regard to consumption, he said, the rural demand for FMCGs has increased especially for high-value goods. The same trend is evident for small towns, contributing to growth, he added.

The CEA said that in spite of the global slowdown, the services sector exports have shown a remarkable performance and both manufacturing and services sectors are expanding and income growth is evident in the recovery in rural demand.

The residential real estate sector will underpin growth in the construction material sector, he added.