Updated 16:53 IST, June 17th 2024
India will grow at 8% in FY25: Sanjiv Puri, President, CII
As India steps into this new phase, the focus remains on how Modi 3.0 will deliver on these expectations.
In a pivotal moment for India Inc., expectations are high as Modi 3.0 embarks on a new mandate, promising fresh directions for the economy. The spotlight is on how the government will steer growth and navigate market dynamics.
In an insightful interaction with Republic Business, Sanjeev Puri, President of the Confederation of Indian Industry (CII), discussed the business community's keen interest in policy continuity, impactful reforms, and initiatives vital for sustaining economic momentum.
As India steps into this new phase, the focus remains on how Modi 3.0 will deliver on these expectations and shape outcomes crucial for the nation's economic journey ahead.
Edited Excerpts:
Q: CII has given a projection of 8% growth for India in FY25. So where exactly is this optimism coming from? What is driving this growth?
A: Let's just look at the starting point. Last year, the economy grew at 8.2 per cent. It's above any estimate that was given. And it has grown by 8.2 per cent when the performance of the rest of the world has been relatively depressed. So it's indeed a remarkable figure.
And if one goes back to see what led to this kind of remarkable performance, it's on account of a lot of structural changes that have happened in the economy, a lot of policy interventions that have had over a period of time, which have led to good macro stability. It is also creating a positive investment climate. It is also on account of public investment. So, there are a lot of positives in the economy over a period of time that have created this robust performance of the economy.
And if you look going forward, what we are seeing is that the strength will continue because these are all sustainable interventions. We are expecting that, given that the reform process has yielded good results, the reform process will gather more momentum going forward.
And in addition to that, in the near term, there are some factors also that are positive compared to the previous year. Global trade was in negative territory last year. It's expected to grow at 2 per cent plus this year.
The monsoon is expected to be better. So agricultural production is hopefully better. And that certainly gives optimism for the agriculture sector. And generally, what's been seen as food inflation being more moderate in times of better agri-production. And food inflation is what is sticky so far.
The core is already down to about 3 per cent. So CII also expects that inflation next year may be around 4.5 per cent. And that in turn will also give the opportunity for interest rates easing in the latter part of the year. So in the near term, you know, we are also seeing some positive factors that will provide some momentum.
Besides, of course, the continued impact of all the reforms and the reforms that will be pursued in mission mode during this year. So that's what gives us optimism. And this optimism is also reflected in the CII business confidence survey.
The fourth quarter had the highest level of metric of 68 per cent plus as compared to previous quarters. So, all of this is what I think provides the reason for all of us to be optimistic.
Q: In your presentation to the government, you recommended expanding the GST ambit and adding more items to it. Also, considering the previous tax concessions to corporations, what are your expectations regarding taxation now?
A: In GST, we are suggesting that it should be a three-tier structure from the four-tier right now. And secondly, it should be all-inclusive. So the sectors that are excluded today should come into GST. On the direct tax front, it's more on the principle of simplification.
So, in TDS, there are many slabs, as far as capital gains are concerned, different instruments have different parameters. So, we are looking at harmonising that, simplifying it and that's the piece.
So, the third leg is also that, in the context of India integrating more and more into global value chains, ultimately, we should get to a three-tier customs duty. The lowest end being for primary, then for intermediates and then for finished goods. So these are broadly the suggestions at a macro level.
Q: Recently, we've seen the corporate profit ratio to GDP rise. However, has private capital expenditure expanded in tandem? In other words, is private capex growing enough?
A: Obviously, we will also say that given the potential of India, it's not enough, we need to do more. But having said that, let me get to some facts. In 2022-23, the private capex as a percent of GDP was 23.8 per cent, higher than pre-COVID levels. And the trajectory is absolutely positive. It's across a range of sectors.
Some have been provided impetus through PLI, some through investments in public infrastructure, the sectors indexed to that.
And there are other sectors also. So a number of sectors are showing positive momentum. And we believe that the trajectory is positive.
The CII Business Confidence Survey also revealed that many businesses were saying that capacity utilisation is 75 per cent and upwards. So that's the time when you start considering fresh investments. The RBI report also indicates capacity utilisation of 75 per cent.
The financial sector's health is good, corporate balance sheets are better. Income tax rates have been rationalised. So all the good ease of doing business, cost of doing business, all these are in much better shape than they were earlier. So all positives as far as the business climate is concerned.
And that's why we believe that the trajectory should kind of continue.
Q: With the budget approaching, India Inc. is optimistic about continued growth in government Capex. However, there's a view that the government, in its third term, might adopt a more conservative approach to Capex. What are your thoughts on this?
So, I've been saying that the earlier policy approach which was investment led inclusive growth, which is a more sustainable path to growth, has yielded results that are visible from the performance of last year. And that should energise everybody to go that path even more. So, from that perspective, we believe that the capex should be enhanced by 25 because it strengthens the competitiveness of the economy it brings about a lot more productivity in the economy.
Q: Do you think that the investment climate currently in India, especially for foreign investment, is conducive? What are the few things that the government can take note of at this time?
I think it's very very conducive. Lot of steps have been taken in the past and some of these I already spoke about. It's always a journey and at each, given the potential of India, we have to always ask this question what is the next step. So, from that perspective, I think there are areas that canprovide further impetus.These include the big-ticket reforms on land, labour, power.
I think that the government has been working very proactively with FTAs, some we have signed in the recent past, some are underway. All these will also go in a long way because they facilitate integration with the global value chain.
Manufacturing is the buzzword and it has been one of the biggest successes of the Modi government for the last two terms. There is a proper climate for its manufacturing is in the discourse.
Q: But how long will this dream run continue if there is no major technological intervention? How much will new, fresh technologies be implemented, and how fast do you think AI is going to be introduced in India?
A: If you look at a global context, there is this whole thing about supply chain diversification.
There is this whole opportunity in energy transition. And both of these offer tremendous opportunities for India. And also, India is a very small portion of the global value chain. Global trade is 70 per cent through global value chains. So, that's the headroom to grow. And AI, I think, has just started the journey.
Manufacturing has to be a much more significant component of GDP, so headroom to grow is tremendous. There is also now a need and an opportunity to provide similar impetus to labour-intensive sectors. That's another opportunity that can be unlocked.
Q: Many foreign investors frequently mention that they want to invest in India but highlight a significant skill gap. Is this true? Is there a disparity between the skills needed and what is currently available?
A: Though demographic is a strength. That's an area that certainly requires some more investment. And that's one of the parts of one of the suggestions that the CIA has got that, over a period of time, the investment in education should go up, investment in healthcare should go up, investment in skilling should go up. And these are all areas where industry has to also do its bit and work on it.
And we are also suggesting the creation of a universal labour skill inventory online platform where there is a full inventory and which can be laid with some kind of forecasting of the requirement. And that in turn feeds into the areas where skilling is required and better industry and government work and collaboration in developing the industry ready and the skills that are in demand.
So that's clearly an area where there is an opportunity to take it to the next level. We must also acknowledge the kind of institutions that have come up, the kind of systems that have been set in place. But I think for our growth, we need much more. So we need to put a lot more impetus on skilling and developing human resources.
Q: Looking ahead to the next five years, both investors and stakeholders are keen to know which sectors in India Inc. will experience significant growth. Will it be aviation, manufacturing, electric vehicles (EVs), or automation? Where do you see the primary growth centres in the industrial sectors?
A: In CII, we believe all the three sectors of the economy need to fire for us to maintain the high growth rates. So we believe we have to get growth in agriculture, in services, in manufacturing, and all of them have opportunities.
If we consider manufacturing, I've already mentioned the existing drivers. Additionally, technology will play a crucial role as seen through partnerships with the US and potential collaborations with other countries.
Corporate India also needs to increase its investment in R&D, which currently remains on the lower side. This investment can generate intellectual property and pave the way for new value chains. The government's innovation fund could catalyse an innovation ecosystem involving institutes, academia, and industry in strategic sectors.
In services, tourism presents a significant opportunity, along with IT services and technology-related sectors which are attracting considerable investment, particularly from GCC countries. Though technology and discretionary spending are currently subdued, they are essential for enhancing competitiveness over time.
In agriculture, there is immense room for growth, not only to meet domestic demands, but also to cater to increasing global food and nutritional needs. Overall, every sector presents tremendous opportunities.
Q: How sure are you that india will hold this position as the fastest growing economy?
A: We feel very optimistic about it. The industry feels very optimistic about it.
Published 16:27 IST, June 17th 2024