The newly-appointed President of Confederation of Indian Industry, R Dinesh, said that with capacity utilisation across industries crossing 75 per cent, we are likely to see fresh investment as that is typically the threshold at which businesses add capacity.
“Sectors like cement, steel, machinery are seeing more than 80 per cent utilisation, which means it is time for capital formation,” he told Moneycontrol.
Asked about the slow pace of private investment, he said, “All indicators tell me that private sector capex is already there. If you look at the services sector — hotels, airlines — they are speaking of 90-95 percent utilisation. This shows that private sector capex has come back.”
He said that as per CMIE data, capex commitment stood at Rs 14.7 lakh crore in FY 21-22, whereas in FY 22-23 it was Rs 25.7 lakh crore.
Tepid private sector investment has been the missing piece in India’s growth story, considering the downward revision of corporate tax rates to 25 percent for companies with profits less than Rs 400 crore per annum, along with other support like Production Linked Incentives, in order to catalyse capex.
The revision of corporate tax rates was a politically contentious move that invited accusations of “suit-boot ki sarkar” (a government for the suits, as in the rich) from the opposition, which continues to put the government in a corner on a gamble that doesn’t seem to have paid off, or so the critics say.
Rural demand
According to the World Bank, private gross capital formation was 22 percent of GDP in 2022, down from a high of 25-26 percent in FY 13-14 and FY 14-15. According to economists, for the country to hit the $5 trillion mark, growth needs to be in the range of 7.5-8 percent over the next few years, which means an investment rate of 37-39 percent of GDP.
On uneven demand recovery, with demand for lower-ticket items playing truant but demand for higher-priced items booming (hinting at subdued rural demand), Dinesh added that rural demand was back “quite significantly in the FMCG, consumer durables, and automobile sectors.’’
He said the CII is betting on closing FY 23-24 on the higher side of its growth estimate of 6.5-6.7 percent. “After the fourth quarter GDP numbers I feel growth will be closer to 6.7 than 6.5 per cent in FY 23-24.”
On the challenges and vulnerabilities of the Indian economy, he explained that these are mostly related to the global scenario. He said that Indian Industry is hoping that inflation will soften in the overseas markets, and the global geo-political situation will stabilise. “As far as India is concerned, I don’t think we will face a major issue, except maybe the monsoon.”
Betting on reform
Dinesh pointed out that with focus on infrastructure and reforms such as GST, the foundation of reforms has been set. There have been two types of reforms in India — one, focused on the ease of doing business, and the other on the cost of doing business.
According to a CII survey cited by Dinesh, 66 percent of CEOs surveyed said the cost of business had reduced, and 88 percent said the time taken to do business had reduced. “Spending on infrastructure has reduced the cost of doing business. We need to continue to strengthen these two pillars,” he added.
On labour reform, he said that India’s narrative should change: “This is not an industry ask, this is a requirement for India. It will make India competitive and lead to more jobs. This is not in the interest of industry but of India.”
You can watch the full interview on moneycontrol’s YouTube channel.
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