'India Inc needs to push up capex instead of keeping cash on books': EAC-PM chairman S Mahendra Dev

The statement by S. Mahendra Dev, Chairman of the Economic Advisory Council to the Prime Minister (EAC-PM), urging 'India Inc.' to ramp up capital expenditure (capex) is a significant indicator of India's current economic policy direction and aspirations. It underscores a crucial pivot point for the nation's growth trajectory, moving from government-led stimulus to private sector-driven investment.

**Background Context: The Economic Landscape and the Role of Capex**

For several years, particularly in the aftermath of the 2008 global financial crisis and more recently the COVID-19 pandemic, India's economic growth has largely relied on government capital expenditure. When private investment was sluggish due to various factors like the 'twin balance sheet problem' (stressed assets in banks and over-leveraged corporate balance sheets) and subdued demand, the government stepped in to boost infrastructure spending. This public capex acted as a counter-cyclical measure, 'crowding in' private investment by improving logistics, creating demand, and signalling confidence. India has consistently been among the fastest-growing major economies, projected by various international bodies like the IMF and World Bank to maintain strong growth. However, for this growth to be sustainable and job-rich, private sector investment is indispensable. The government's consistent focus on fiscal consolidation, aiming to reduce the fiscal deficit to 4.5% of GDP by FY2025-26 as per the Fiscal Responsibility and Budget Management (FRBM) Act, necessitates a reduction in its own borrowing and spending, creating space for private players.

**What Happened: The Call for Private Sector Momentum**

S. Mahendra Dev's call is a clear message that the government believes the macroeconomic conditions are ripe for private companies to significantly increase their investments. He highlighted two key enablers: strong economic growth and low inflation. Strong growth ensures demand and profitability, while low inflation (managed effectively by the Reserve Bank of India through its inflation-targeting framework based on the RBI Act, 1934) reduces business costs and provides stability. The specific mention of boosting investment in infrastructure and manufacturing aligns with national priorities like the 'Make in India' initiative and the 'Atmanirbhar Bharat' vision, which aim to enhance domestic production, reduce import dependence, and create global champions. New reforms, such as the Production Linked Incentive (PLI) schemes across various sectors, the National Infrastructure Pipeline (NIP), and PM Gati Shakti, are designed precisely to facilitate this private sector push.

**Key Stakeholders Involved**

1. **Economic Advisory Council to the Prime Minister (EAC-PM):** An independent body that advises the Prime Minister on economic matters. Its chairman's statements carry significant weight, reflecting the government's economic thinking and priorities.

2. **Government of India (particularly the Ministry of Finance):** The primary policymaker, responsible for fiscal consolidation, creating a conducive investment climate through policy reforms, and managing public finances as outlined in the Union Budget (Article 112 of the Constitution).

3. **India Inc. (Private Corporate Sector):** The direct target of this appeal. Their investment decisions in new projects, capacity expansion, and technology upgrades are critical for job creation, innovation, and sustaining economic momentum.

4. **Reserve Bank of India (RBI):** Plays a crucial supporting role by maintaining price stability (low inflation) and ensuring adequate liquidity and credit availability, which are vital for investment.

5. **The Indian Public/Workforce:** Ultimately benefits from increased employment opportunities, better infrastructure, and a more robust economy.

**Why This Matters for India: Economic, Social, and Political Significance**

The shift from public to private capex is vital for several reasons. Economically, it ensures sustainable, high-quality growth. Private investment often brings greater efficiency, technological upgrades, and market-driven innovation. It's crucial for achieving India's goal of becoming a developed economy by 2047. Socially, increased capex translates into more jobs, both direct and indirect, across various skill levels, addressing the demographic dividend challenge. Politically, a thriving private sector reduces the burden on government finances, allowing for greater allocation to social welfare programs and critical public services, aligning with the Directive Principles of State Policy (Part IV of the Constitution), particularly Article 39, which emphasizes equitable distribution of material resources and preventing concentration of wealth. Furthermore, a strong manufacturing base enhances India's global competitiveness and resilience against external shocks.

**Historical Context and Future Implications**

India has witnessed cycles of public and private investment. Post-independence, the Nehruvian era saw significant public sector dominance. The economic reforms of 1991 opened doors for greater private participation. However, periods of slow private investment, like the one following the 'twin balance sheet problem' from 2012-2017, necessitated government intervention. The current call signals that the government believes the groundwork has been laid – corporate balance sheets are deleveraged, bank NPAs have reduced, and policy reforms have improved the 'ease of doing business' (a key parameter for investment). If India Inc. responds positively, the future implications are profoundly positive: sustained economic growth above 7-8%, significant job creation, further integration into global supply chains, and a stronger fiscal position for the government. Conversely, a continued reluctance could mean slower growth, persistent reliance on government spending, and a missed opportunity to fully capitalize on India's demographic and economic potential.

**Related Constitutional Articles, Acts, and Policies**

While direct constitutional articles specifically on private capex are limited, the broader economic framework is enshrined:

* **Article 112 (Union Budget):** Outlines the government's financial statement, including its capex plans and fiscal consolidation targets.

* **Article 266 (Consolidated Fund of India):** Governs government receipts and expenditures, including public capex.

* **Fiscal Responsibility and Budget Management (FRBM) Act, 2003:** Provides the legislative framework for fiscal discipline, including debt reduction and fiscal deficit targets, which underpin the government's push for private capex to take over.

* **Reserve Bank of India Act, 1934:** Mandates the RBI's role in monetary policy and inflation targeting, crucial for creating a stable investment environment.

* **Key Policies:** 'Make in India', 'Atmanirbhar Bharat', Production Linked Incentive (PLI) Schemes, National Infrastructure Pipeline (NIP), PM Gati Shakti, and various 'Ease of Doing Business' reforms are all governmental efforts to create a conducive environment for private investment.

This concerted effort to activate private sector investment is not just about economic numbers; it's about shaping India's future as a global economic powerhouse.