News
China factor delaying private investments: Sanjiv Puri
Summary
- CII expects GDP growth of 6.4-6.7% this fiscal, slower than the 8.2% growth seen in FY24 as pent-up demand from the pandemic years subsides and the economy expands at a rate closer to its long-term potential.
New Delhi: China’s surplus capacity is dampening Indian business’ spirit for adding further production capacity, according to Sanjiv Puri, president of Confederation of Indian Industry (CII). The industry body expects GDP growth of 6.4-6.7% this fiscal, slower than the 8.2% growth seen in FY24 as pent-up demand from the pandemic years subsides and the economy expands at a rate closer to its long-term potential. Businesses are betting on a revival in government’s capital expenditure in the second half, a possible rate cut by the RBI and a pick up in rural demand due to good monsoon showers. But there are headwinds to growth and the government should continue investing in infrastructure, use proceeds of divestment in state-run companies to set up a sovereign investment fund to acquire strategic assets globally, and target subsidies by expanding direct transfer of social benefits, Puri, who is also chairman and managing director of ITC Ltd, said in an interview. Edited excerpts:
Last June, you had mentioned that factories are putting to use more than 75% of their capacity, a sweet spot for further investments. Yet, the first advance estimate for FY25 GDP shows growth in investments in plant and machinery going south to 6.4% from 9% a year ago…
If you look at the larger picture, it's important to recognize that the Indian economy is able to achieve the kind of numbers that are forecast despite all the challenges that we see around us, and China dumping stock all over. Secondly, economic growth rate in the first half was only 6%; so, it is going to be higher in the second half, which is a positive movement.
There were some transient factors in the first half, which might have also impacted some private capex. But right now, you do see that CMIE (Centre for Monitoring Indian Economy) has reported significant increase in announcements of private capex. Capital goods producers are saying that their order books are good, which also indicates that businesses are placing orders.
A CII survey shows 25% of businesses are saying they will invest more this year, and 45% say they will invest more next year. Besides, data show that in FY22 and FY23, private sector capital expenditure had exceeded the pre-pandemic level.
So, directionally, we do see that investments are happening in quite a few sectors. But I think there are some headwinds which will obviously be subduing investments. These have to do with, one, the China factor, which is a very big factor because of the stock dumping in several sectors. This is an issue in India and globally, and it impacts us either way. If they dump stock overseas, then we cannot export. And when it comes to dumping in India, it affects us directly.
The second factor is that consumption is a little muted. Of course, compared to the rest of the world, we are still better off, but compared to what we would like to see in the economy, it is a little subdued. Indications suggest private investments taking place, but there are headwinds we have to be cognizant of.
Businesses and the government don't appear to be on the same page about the reason behind sluggishness in consumption demand. Government officials believe private sector salary increments have not kept pace with the increase in their profitability, but CII proposed the government should cut taxes on petrol and diesel to boost consumption. Your thoughts?
Cutting excise duty on petrol and diesel are a set of options we have given to boost consumption overall in the economy. On the issue of compensation, within CII, we are very clear that the role of business is to meet aspirations of all stakeholders. We are all competing for talent in the market and everybody wants to retain good talent, whether it's on the shop floor or at the managerial level. Compensations do get revised periodically. Inflation, market dynamics, market benchmarking, etc. influence salaries, and salaries go up, otherwise people will not be able to retain talent.
The larger issue that we have to perhaps address is how to create more jobs and how to improve the quality of jobs in the country. Many of the suggestions given by us are on these two areas. We suggested taking the learnings from the success we have had in certain manufacturing sectors like electronics for making targeted interventions in labour-intensive sectors like garments, footwear, furniture, tourism and real estate. For example, giving infrastructure status to tourism industry.
The government partnered with the industry to offer the PM internship scheme for improving employability of people. But in spite of initial enthusiasm, it appears the remuneration offered is seen as a little low and it is felt that interns in smaller towns will have to incur out-of-pocket expenses. Does the scheme require a revamp?
We have to pursue this scheme because any new scheme could at times face certain operationalisation-related lag and people may take time to fully understand how they will benefit from it. This scheme is to make people more employable. Like one invests in education, one has to see this as an investment in learning and becoming more employable while also getting a stipend.
But having said that, yes, I'm sure there are some practical issues which I think industry is continuing to work on and the government is also focused on it. There is greater engagement with the government and the people who are applying, to bridge the gaps. I know people have taken up internship in companies. We have to be at it. Sometimes people have to be explained the benefits that will be there. It is a good intervention. We should persist with it and keep doing whatever tweaks are required along the way.
Do you think a reduction in GST rates can help in boosting consumption?
Of course, yes, it can help. The larger point we are making is that we have to move towards a three-tier GST structure and optimize it as much as possible, and bring in all the other items that are excluded to make it completely inclusive.
We also maintain that the fiscal glide path that the government has announced is the right approach and we should stay with that, not compress it further and neither expand it.
Has the shift in the way India deals with corporate defaults under the Insolvency and Bankruptcy Code (IBC)—lenders taking over defaulting companies and promoters being barred from bidding for their companies without paying back dues—affected the risk appetite of India Inc.?
I don't think so. I have not come across any data like that. Business by their very nature will have risks. Some businesses may not succeed and if they do not, it is important to find a solution to this and there has to be a process of dealing with it.
It is not that only India has a debt resolution framework. It is a global practice. There are risks of failure in business, and when things fail, we have to see how to deal with the situation because public money and employees are involved.
