Top Trending News

Availability and cost of capital are the main driver of India’s economic growth: AltG Investment Research


New Delhi, March 28 (ANI): The Indian economy is at a defining juncture. India has grown at over 8% for three consecutive quarters, reaffirming its position as a strong performer among global growth trends. Driven by the government’s investment effort which continued to attract private investments, gross fixed capital formation (GFCF) at constant prices recorded a growth of 10.2% in FY24 and 10.6% in the third quarter of FY24. There has been a widespread recovery in investments, as evidenced by the growing share of GFCF, which increased from 29.6% in FY22 to 31 .3% of GDP in FY24.

SP Global has twice raised India’s growth projections for FY25, from 6% to 6.4% and now to 6.8%. Morgan Stanley also followed suit and raised it to 6.8%. Earlier, the RBI had revised India’s growth to 7%.

An analysis from investment research lab AltG states that “the issue that needs to receive the most attention is capital. Availability, flexibility and cost of capital will be the most important driver of India’s economic growth in the 21st century. » Recent NSO data suggests that India is moving from a consumption-driven economy to an investment-driven economy. The union budget has almost tripled capital expenditure from Rs 4.1 lakh crore in FY21 to Rs 11.11 lakh crore in the current fiscal. Investments increased exponentially from Rs 4.39 lakh crore in FY21 to Rs 5.54 lakh crore in FY22, an increase of 35%. In FY23, it was again increased by 35% to Rs 7.5 lakh crore. In FY24, it was increased by 37.5% to Rs 10 lakh crore, which was later increased to 11.11 lakh crore in the FY25 interim budget.

The question is whether private investment is proportional to public spending and how can we reduce the cost of investment? AltG Investment Research says: “There are two main ways to do this. First, using hybrid structures to provide capital to these companies to give them much needed expansion capital and enable them to achieve scale. The second way to achieve scale is through platforms that can aggregate and provide expansion capital to these businesses. “A recent report from the Observer Research Foundation (ORF) suggests that the Indian economy has mustered enough momentum to burst all the bubbles of pessimism and silence all the prophets of doom. Real GDP growth for 2023- 24 is estimated at 7.6% against a nominal growth rate of 9.1%.

ORF states: “Driven by the government’s investment effort which continued to attract private investment, gross fixed capital formation (GFCF) at constant prices recorded growth of 10.2% during the FY24 and 10.6% in the third quarter of FY24. There has been a broad recovery in investment, as evidenced by the growing share of GFCF, which rose from 29.6% in in FY22 to 31.3% of GDP in FY24. “Recent estimates suggest that the multiplier effect of capital expenditure reaches 2.45, implying an increase of Rs 1 in capital expenditure will lead to an increase of Rs 2.45 in GDP.

So how can you reduce the cost of capital? Analysis from AltG Investment Research suggests changes in regulations and investment vehicles. For example, to give a boost to private markets, it is essential to put unlisted debt instruments on par with listed debt instruments.

“The key driver of India’s economic growth in the future will be a growing number of Indian companies that manage to expand their offerings, reduce production costs, enable more use cases, further increase scale of these businesses, to further reduce costs and boost usage. The key to all of this is access to lots of flexible, inexpensive capital. We’ve seen what cheap data and mobile phones have done in India. We have seen what accessible credit and two-wheelers have done to economic growth since the 1990s in India.” says the analysis.

AltG Investment Research said: “Cheaper computing power has enabled new use cases to emerge. These new use cases led to increased demand for chips, creating greater scale and even lower costs at the unit level, leading to even more possible use cases, and the virtuous cycle effectively drove the fleas towards the epicenter of the world. “In a recent report on the Indian economy, MorganStanley said “we expect the investment trend to accelerate steadily, creating a virtuous cycle of growth. Raising investment spending is essential for a positive medium-term economic outlook. In our view, emerging signs of a recovery in investment spending will become more widespread and support the upward trend. We expect the overall investment rate to accelerate to 36.2% of GDP by FY27, from 32.2% of GDP in FY23.”

Analysts say that assuming a stable political environment and effective policymaking, India’s growth will continue. (ANI)


Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button