Energy security is critical to sustain India’s growth: CEA

New Delhi: Energy security, including the use of fossil fuels, will be the single most crucial factor in sustaining India’s growth rate, chief economic advisor V Anantha Nageswaran said on Thursday, amid mounting worries over geopolitical instability and the impact of climate change.

“Energy is going to be an important driver for economic growth and it is energy security that is coming under a lot of pressure thanks to geopolitical developments and thanks to climate change, etc. (For) India, if at all there is a single most important worry in my mind for sustaining the growth rate that we have been able to achieve in the last two to three years, it is energy security,» he said at the CII annual general meeting.

Nageswaran stressed the importance of continued funding for fossil fuels, even as India moves towards a better balance of renewables in the energy mix. This, he said, was necessary to not jeopardize growth.

He said financial institutions should look at the overall environmental costs when evaluating green projects, and be aware of ‘green washing’—projects that pass off as green but actually end up damaging the environment through unintended consequences.

The financial sector must make investments into digital transformation for not only financial inclusion, but also credit assessment and credit judgement, in order to ensure the financial cycle in India, which has just begun, lasts much longer than the previous ones.

“It’s important to ensure that this cycle lasts longer and all the lessons learned from the previous cycle are not forgotten quickly. Therefore this is where we need to make sure that whatever technological investments we need to make and also in skill sets and capabilities that we need to make to ensure that credit judgement is done as scrupulously, and as correctly as possible, more importantly, as realistically as possible,» he said.

On whether the United States Federal Reserve would increase rates further, the CEA said that he did not expect liquidity to be tightened further. He also expected the US Congress and US President Joe Biden to reach an agreement before 1 June to raise the debt ceiling to 35 trillion, failing which it will trigger a debt default.

The CEA said in response to a question on the need for undertaking privatization, that both privatization and monetization are important for unlocking the efficiency of assets. The need for keeping the momentum of privatization was critical, he said, despite the “ebbs and flows» for various reasons such as time-consuming processes or litigation by stakeholders.

He added that public sector banks were being capitalized and in a good shape and were hence going to be more valuable, and stressed that adopting private sector mechanisms within the public sector framework would provide better outcomes.

He also noted that as the investment cycle unfolds through foreign direct investment or domestic investment, India will see employment generation and income growth happening at different income strata, which in turn, will underpin consumption growth.

“I believe the consumption growth will be an offshoot of investment and income generation to this time, it will be more sustainable without necessarily jeopardizing our external balances,» he said.

On capital inflows in the form of investments into various sectors, the CEA said that $66 billion grossed in the first 11 months of FY23 compared to $84 in FY22—due to rising interest rates and geopolitical uncertainties—was not a bad performance. However, investor-state interactions, protection regimes, stability of tax policies, last mile connectivity and plug-and-play issues in the infrastructure on the ground, were areas that could be improved upon to bring more funds to the country.

He added that companies moving to India was the beginning of a trend at a time when they were coming to terms with uncertainties in their own backyard. “I think their ability to focus and concentrate on this supply chain diversification including India in their list of countries will only get better,» he said.

The CEA also backed the implementation of TCS on overseas credit card transactions and the 7 lakh exemption that followed, noting that the changes will ensure that common citizens and honest taxpayers are not inconvenienced.


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