In a recent address at the SEBI-NISM market summit, Sajjid Chinoy, the Chief Economist at JP Morgan India, attributed the 12% fall in corporate investments relative to GDP over the past decade to weak demand, not supply-side constraints.
Chinoy emphasized that while corporate cash flows and balance sheets are robust, the real issue lies in the lack of demand for additional capacities. The private sector, having built up significant capacity during the boom years of the early 2000s, now faces stagnant demand, preventing further investment. Despite financial health, companies are reluctant to invest unless they anticipate substantial returns.
Chinoy also noted that the issue is not a shortage of private savings but rather the public sector deficit, which offsets private sector surpluses. He recommended neutral tax policies across asset classes to incentivize corporate investments. These policies could help convert private savings into productive investments, facilitating a capex cycle and promoting corporate bond issuances.
The economist suggested that a more balanced tax approach would encourage investment across the economy and prevent distortion in household investments.
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