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Sectors linked to infra poised for new investments: CII president

With capacity utilization at 80% or higher, these sectors stand out as primary candidates for substantial fresh investments (Getty Images via AFP)
With capacity utilization at 80% or higher, these sectors stand out as primary candidates for substantial fresh investments (Getty Images via AFP)

Summary

  • R. Dinesh forecasts a promising investment outlook for infrastructure-related sectors such as cement, steel, and electrical machinery

NEW DELHI : Confederation of Indian Industry (CII) president and TVS Supply Chain Solutions managing director R. Dinesh forecasts a promising investment outlook for infrastructure-related sectors such as cement, steel, and electrical machinery. With capacity utilization at 80% or higher, these sectors stand out as primary candidates for substantial fresh investments. Other sectors broadly report utilization up to 75%, which typically signals the consideration of new investments by companies. Dinesh anticipates the investment cycle will accelerate over the next 6-12 months. However, there remain challenges. He said that ensuring access to skilled labour for industry demand is an ongoing effort, highlighting the unemployment concerns. Though small businesses have recovered from pandemic-induced disruptions thanks to credit support, it cannot be said they are not entirely out of the woods yet, Dinesh said. Edited excerpts:

What are the factors hindering companies from making investments despite several measures by the government?

That is a very relevant question. If you step back for a moment and look at where we were in 2019-20, you will see that Covid-19 overtook us towards the fag end of that last quarter. But leaving that aside, 2019 was not a great year for the Indian industry. In normal circumstances, you should have seen that [investment] uptick starting to happen, maybe in 2020-21. But you went through the tough period of Covid-19. We have had only less than 12 months now of what I would call normal after the Ukraine crisis if you ask me. As per a CII survey, this is the first-time capacity utilization has already crossed 75% across many sectors. In normal circumstances —this is not anecdotal, but facts prove it over 20-30 years of data—that once utilization crosses 75%, fresh investments are looked at. In certain sectors —and these are very core sectors—capacity utilization has actually crossed 80%. It means that the possibility of what I would call ‘significant capital expenditure’ going in will be even higher. I am talking about sectors that service infrastructure like steel and cement because, obviously, significant expenditure has taken place from the government. This [insight] is from our survey feedback. Then, there is the lag effect of infrastructure spending. It may have taken 12 months for the full benefit of the amount of spending going into the infrastructure sector to be felt in the private sector. If you look at the March quarter data and also for April and May, you will see it has gone up across all sectors, whether it is goods and services (GST) collections or demand. Everywhere, there is an uptick. If I step back and put all these points together, I don’t want to say it will happen tomorrow, but I think that the clear trend is that you will see significant investments taking place from the private sector. CMIE data shows that [private sector] commitment to invest has gone up sharply (by 75% year-on-year in FY23 to 26.25 trillion). Even though it is a commitment, and you may say it has not happened yet, people are not going to make an empty statement without a plan in place. The most important point is I strongly believe, both from CII members’ perspective and of the industry, that you will see a significant increase in private investments.

In the next 12 to 15 months?

Yeah, I would say it is already starting. But you will see the full effect of it in the next 6-12 months.

In which sectors have capacity utilization exceeded 80%?

These include basically steel, cement, chemicals, and electrical machinery. If you look at this, other than chemicals, most of it is related to infrastructure creation. Machinery is obviously a very good indicator because it is going to the sector that is going to invest in the future.

We are set to become the most populous nation, with 1.4 billion people, 69% of which will be below 24 years. But there are not enough job opportunities, undermining the demographic dividend. What are the challenges affecting employment generation?

One fundamental issue is the skill updation and the skill readiness or employability of the people. Obviously, the industry is working together with academia, but we are saying many times it is a work in progress. It’s not something which is going to happen overnight. It will take its own course, but definitely, there are significant steps there. We are working on ensuring we have what I would call ‘industry-ready standards’ for various types of new-age jobs and also some of the existing jobs that require significant upgradation... Sectors where semi-automation is happening—that is, where processes get automated, but work anyway is still physical—will see a significant uptick in employment. We should not look at the traditional way of employment growth. Coming from a supply chain sector, I can tell you it is a sector where there are huge growth and employment opportunities. Every company to whom I speak is speaking about increasing manpower or labour by close to 10-15%. There will be a nice mix of different skills. I don’t believe automation is taking away jobs. But having said that, we will work on harnessing disruptive technologies responsibly to ensure that these do the right things rather than creating jobless growth.

Has the MSME sector recovered from the disruptions in the past few years?

To a great extent, it has been mitigated by the funding availability. We directly engage with MSMEs in making them digitally ready, automation-ready, and in their ability to attain the best quality. CII is working to make sure that they do not lose out, and it is in the interest of corporations to make that happen. One segment of MSMEs—livelihood businesses—is a focus area for us this year to make sure large corporations work with them and support them. To answer the question of whether MSMEs are completely out of the woods, one cannot say so because certain sectors will still have challenges, but a significant [extent of] pain is eliminated.

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