Where Is The Debt?

Robust equity markets are not enough to kickstart a private sector capex cycle. India needs easily accessible debt financing

- AKASH PRAKASH

Everyone is celebrating the India growth story. With the real gross domestic product (GDP) growth number now crossing 8 per cent, it stands out. Most investors now buy into the notion that in the coming decade India will deliver real GDP growth of between 6.5 and 8 per cent for the full decade. The perceived predictability and stability of this growth is one of the reasons why India's valuation multiples are at the high end of their history. This growth path is critical to creating enough jobs and becoming comfortable with our internal debt dynamics. For the markets also, this matters, as this trajectory implies 11-13 per cent nominal GDP growth, which has historically been a reasonable predictor of corporate earnings.

When discussing the India growth story, the only chink in the armour seems to be private capital expenditure or capex. The government has done a great job boosting public investment, but significant followthrough from the private sector is yet to be seen. The popular narrative is that without acceleration in private sector capital expenditure the India growth story cannot sustain.