With 8.2% strong GDP growth, India Inc sees animal spirits coming back

Strong GDP growth changes mood, though some say kickstarting investment cycle still a work in progress

What may have otherwise been dismissed as a mundane meeting turned out to be a setting for hope when around 60 India Inc leaders gathered at a premium hotel in the capital on Saturday. As part of the national council of the Confederation of Indian Industry (CII), these top businessmen had in the last quarter meeting discussed the perils of a sluggish economy. Three months later, the business chamber’s closed-door council meeting signalled a turnaround in mood, with the 8.2 per cent GDP growth number fresh in everyone’s mind.

A senior CII functionary who was present at the meet told Business Standard that industrialists had affirmed their belief that the adverse effects of demonetisation and the goods and services tax (GST) were finally over. He did not want to be quoted. According to a source, CII President Rakesh Bharti Mittal expressed hope that a sustained period of industrial growth lay ahead. Mittal is, however, learnt to have stressed that kickstarting the domestic investment cycle was still a work in progress.

The optimism was cautious, though, for many. Rashesh Shah, president of the rival business chamber Federation of Indian Chambers of Commerce and Industry (Ficci),  said, “While the latest growth numbers are quite robust, the volatility in oil prices and rupee value is exerting some pressure on industry members. These two factors have emerged as the key macro-economic concerns on the horizon.’’ According to Shah, these factors can weigh heavy on the growth performance besides having clear implications on the current account and fiscal deficit.

To Anand Mahindra, chairman of automobile major M&M, the robust GDP growth number for the first quarter of FY19 was like receiving the news of a medal in the Asian Games. ‘’We’ve been sensing a strong recovery of the economy across our various businesses. This data supports that hypothesis. Now, to sustain momentum we need more reforms and swift decision making by policy-makers,” he said.
 

This is a manufacturing sector-driven growth, according to R C Bhargava, chairman of India’s biggest carmaker Maruti Suzuki. 

“I believe that the actions taken in recent years including demonetisation, GST and digital payments have gradually brought down corruption as well as tax evasion. These are essential for growth and what we see today is a result of all the reforms, including the ease of doing business.’’ Bhargava believes the industrial growth can only keep getting better unless any big negative event comes as a setback.

One of the industrialists who attended the meeting on Saturday said the latest GDP number showed that the inbuilt stress in economy was reducing and that the general sense in the industry was one of hope. ‘’However, one must keep in mind that maintaining such high levels of growth can prove to be difficult over multiple quarters,’’ he added. 

Harsh Mariwala, Marico chairman, shared a similar sentiment, saying, ‘’we will have to wait and watch.’’ The GDP numbers have taken everybody by surprise, he said, adding, ‘’I am optimistic, but cautiously.’’ This growth has to sustain and that's the key, according to Mariwala. ‘’I can speak for the FMCG sector. While it has improved, growth will show with a lag.’’ 

Businesses are mostly attributing the growth figure to the third straight year of normal monsoons, reductions in GST-related teething problems and fading of demonetisation's negative impact as important factors. While new investments are still muted, private consumption is boosting the economy across sectors, analysts said. H M Bangur, MD at the country’s third biggest cement maker Shree Cement, acknowledged the government spending in infrastructure. 

That will help in the short as well as the long term, he said. ‘’Cement demand is a reflection of the overall infrastructure expansion and we remain bullish on the growth prospects,” he said. Dharmakirti Joshi, Chief Economist, CRISIL Research, pointed out that growth would be stronger in the first half compared with the second as favourable base effect would begin to wear off after the second quarter. “Sustaining GDP growth at over 8 per cent over the next few years would require significant traction in private investments and relentless implementation of reforms to raise productivity.’’
 

Reflecting the overall enthusiasm of India Inc, CII Director General Chandrajit Banerjee said the investment activity was beginning to bounce back. “With the private final consumption growth also up, we can expect fresh investments as well as capacity creation in FY19 as the demand cycle improves further based on tailwinds created by factors such as prognosis of a good monsoon, increased government spending and favourable global growth," Banerjee said.

With inputs from Viveat Susan Pinto