CRISIL’s Dharmakirti Joshi Rates India’s Growth Durability at 7/10, Citing Abundant Funds But Lacking Will for Private Capex.
In a recent discussion at the ET Alpha Wealth Summit, Chief Economist Dharmakirti Joshi emphasized that while India’s long-term growth trajectory remains robust, corporate India is reluctant to harness its significant financial capacity. With an overall growth durability score of 7 out of 10, Joshi highlighted that despite an average GDP growth of 6.2% over the past three decades, this growth is increasingly aligned with the cycles of advanced economies, suggesting heightened vulnerability during global economic downturns. Nonetheless, India’s growth trend remains distinctly upward due to factors such as low per capita income, infrastructural development, and advancements in digital efficiency.
A critical observation from Joshi centers on the paradox of private corporate investment. Although corporate India’s financial health is sound, exemplified by a historically low debt-to-equity ratio of 0.45, there exists a hesitation to invest. This reluctance is attributed to several factors: ongoing post-pandemic uncertainty, heightened caution resulting from the Insolvency and Bankruptcy Code, and enduring constraints related to the ease of doing business, particularly high logistics and electricity costs. Additionally, competition from Chinese imports adds pressure, forcing companies to deliberate whether to invest in domestic production or resort to importing goods.
Joshi did note a positive development in the form of increased private investment in emerging sectors. Notably, expenditures in electric vehicles, renewable energy, data centers, 5G, and cloud infrastructure have increased, making up approximately 12% of total industrial capital expenditures in the past five years, a figure he projects could rise to 25% over the next five years. This growth is driven not by policy mandates but rather from clear and stable demand, evidenced by substantial commitments to data centers. However, traditional sectors are hindered by weak demand and stiff competition from imports.
Looking ahead, Joshi underscored the paramount importance of monitoring energy prices, positing them as the most critical variable influencing India’s economic dynamics. Fluctuating energy costs are pivotal, capable of either propelling or hindering economic progress amid a complex interplay of geopolitics and the global energy transition. For investors, this insight marks a vital indicator for strategic decision-making in the context of India’s growth landscape.
Source: The Economic Times
(Expert Note: This report was prepared by the Wealthova team.)