Home / Companies / People /  It’s time to pause repo rate hikes to salvage manufacturing : Sanjiv Bajaj

NEW DELHI : It is time India's interest rate cycle decoupled from that in the rest of the world as the high interest rate is constraining the manufacturing sector, said Sanjiv Bajaj, president of industry body Confederation of Indian Industry (CII) and CMD of Bajaj Finserv. Bajaj said in an interview that the economic recovery has been uneven with the rural sector lagging behind in consumption. Broad-basing exports and paucing on rate hikes by the central bank to support the manufacturing sector, will give the economy a steady growth in coming years, Bajaj said. Edited excerpts:

Although the economy is forecast to grow at 7% this fiscal, official data show that the gross value added in the manufacturing sector has been declining in absolute terms in the first three quarters of this financial year. What is going on?

There are two reasons for this. As a result of the pandemic and thereafter, inflation and the interest rate hikes which were needed (to tame inflation), the domestic growth has been unequal. The spending of the middle class and above which ended up saving money, has increased.  Same (true) for urban India.  But the lower income classes got hit the hardest due to the pandemic and then because of the effect of inflation. The  rural India got hit harder than the urban India. And this has caused our domestic growth to be unequal. The second reason is about export-led growth. Now export accounts for a significant part of our economy,  and we know that many of the global uncertainties still remain.

We are starting to see lower export growth as well. Both these things have contributed to our overall growth remaining moderated. Yes, we have to keep in mind that we are a part of the global economy. In the situation like this, we are the fastest growing large economy in the world. At the same time, we at the CII, believe that it is opportune for us to  go back to the pre Covid era, and look at our own economic situation  and decouple our interest rate cycle from the rest of the world. Our inflation is, is roughly half of where it is in the developed world.  It is clearly moderating and trending downwards. Our economy is ready to grow.

We are seeing significant opportunity across multiple manufacturing and service sectors where the world wants to invest in India, buy from India and where our own government , through the production linked incentive and other schemes, are creating the opportunity for growth. In such a situation, we have to be nimble enough where we believe that it is timely to pause the interest hike cycle and to move to at least a neutral stance. This we think, then will help to create new growth, demand in the country and expand private sector investment cycle to many more sectors.  Currently, private capex has already started in sectors like steel, textiles and chemicals and also, interestingly, in new sectors like electronics and mobile phones. So it is showing that India is exhibiting the ability to produce world class competitive goods for the most developed markets. If Apple can make its latest phones here and supply to all over the world, that's a tremendous show of confidence.  How do we broad-base our export basket to more geographies and more products to reduce the concentration risk in export in coming years? This is important for exports. Pausing on rate hikes is important for domestic growth. A combination of these then should give us steady growth in the coming years.

RBI speaks about double-digit credit growth but household consumption seems to have some weakness. What is your reading?

What is interesting is that the more expensive televisions, the more expensive mobile phones etc. are selling. But the volume of the lower priced ones is reducing. It is again showing K shaped recovery. So if you even look in consumer durables over the last nine months or 10 months of the year, in value terms, it has grown a little bit but in volume terms it has fallen, which is exactly showing this unequal recovery. Yes, you see credit growth, but it is not uniform across all segments, which is what we need to ensure now.

What is the scene on private sector capital expenditure? Are businesses borrowing only for maintenance and not capex?

We're seeing capex taking place in some sectors. Machinery sector is one and that is an early sign because that means that other sectors are investing in equipment. Raw materials like steel and chemicals are seeing capex. We're starting to see capex in a few sectors now. I believe in the third quarter, a large part of the incremental capex was from the private sector.

So if we have to boost consumption now, what is it that the government can do?

I think the government has done a lot with the actions that it has taken in the last few years. At this stage, the single biggest ask is to decouple our interest rates and pause the interest rate cycle, keeping in mind the other economic indicators. Then, (other) suggestions to the government are a set of actions for continual opening up of the economy, ease of doing business, operationalising more and more free trade agreements and ensuring that we execute the ones that are under discussion and negotiation right now and for ensuring that the PLI schemes are aligned to benefit from these FTAs. Also, the RoDTEP (Refund of Duties and Taxes on Exported Products) scheme can be extended by another three years to provide the support needed. Greater coordination among the Centre and states on concurrent issues like land, labor and power would further help. These are some of the areas to support in addition to the very strong action that the government has already been taking.

Gireesh Chandra Prasad
Gireesh has over 22 years of experience in business journalism covering diverse aspects of the economy, including finance, taxation, energy, aviation, corporate and bankruptcy laws, accounting and auditing.
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