FMCG, auto data shows rural demand is coming back: CII President R Dinesh

India’s growth in FY24 is expected to cross 6.5 per cent on the back of robust domestic demand, and strong corporate and bank balance sheets, Confederation of Indian Industry (CII) President R Dinesh said. In an interview with Arup Roychoudhury, he said commitment to invest by the private sector in FY23 was nearly 80 per cent higher year-on-year and that bodes well for the current fiscal year. Excerpts:

The FY23 GDP growth projection has been quite encouraging. What is your outlook for FY24?
 

We are projecting FY24 GDP growth at 6.5-6.7 per cent. We believe 6.5 per cent will be achievable, even in a slightly negative scenario. And 6.7 per cent is our belief, let me put it that way. If you look at the tailwinds, first and foremost is the fact that the domestic demand has come back. Second, from the corporates’ perspective, the balance sheets are very strong, they are less under-leveraged. The banks’ balance sheets are excellent. They have the capacity and capability to continue to lend and allow funding for growth. And last but not the least is the focus on India as an investment destination. When we look at all of the macroeconomic indicators, whether it be inflation going down, or global uncertainty not being as dire as before, all of it is leading up to that.

So if I add our look at each of these factors coming together, I would call it the perfect confluence of benefits for us. The only headwinds are global factors and monsoon. But having said that, if you look at history, El Niño doesn’t necessarily mean reduction in growth. So if I put all the pluses and some of the negatives as well across it, the pluses far outweigh the negatives. Therefore 6.5 per cent is the worst-case scenario and 6.7 per cent is most likely scenario.

One of the trends that stands out is that while urban indicators are perhaps doing better than rural. The growth in private consumption was also not that robust. Is our recovery a K-shaped one?
 

If you had asked me this question in February, I think I would have had a very different answer. If you look at what has happened in February, March, April, and May, continuously we have seen rural demand go up for fast-moving consumer goods and even for automobiles in May. All of them have reported a significant increase and are saying it is due to rural demand.

Net-net if you look at it, I definitely don’t believe it’s a K-shaped recovery. I think there was a lag effect of the pandemic, but I don’t think it is true today. Also anecdotally, what we are hearing is that perception is also positive across rural and urban areas so that means that whatever be the reasons, things are looking up.

The global slowdown is definitely there and the Indian economy is not decoupled from the global economy. What sort of hit do you see on exports for Indian industry?
 

That is a reality. I mean, obviously, the demand and the rate of growth at which the Western economies are looking at is miniscule. But if you look at regular investments taking place, all the people who have invested in India for the domestic demand are also exporters. They have a ready-made market and have choices of plants from which they buy. Therefore, that number is continuing to exist and grow, starting from construction equipment or to any other sector, which investments have taken place in the past, they continue to export. And as we see today, the data shows that exports are growing in spite of the negative headwinds. I’m not saying exports will have very high growth, but we have factored in that when we speak of 6.5-6.7 per cent. So we see subdued export growth this year, but not contraction.

The last GDP data showed that private sector investment is coming back. What are your expectations for FY24?
 

Capacity utilisation across all sectors, including transport services, hotels, aviation, etc. are all well above 75 per cent. If I look at sectors like cement, steel, machinery, chemicals, all of them have exceeded 80 per cent (capacity utilization). So I would say the need for capex spend has happened, as when you cross 75 per cent, you have to invest in fresh capacity.

When we did our CEO survey, we actually found 66 per cent of them saying that the infrastructure spending of the government has reduced the cost of doing business, which means that they are also seeing an opportunity to further expand. If you look at the CMIE data, the commitment to invest was ~25.7 trillion in FY23 compared with ~14.3 trillion in FY22. While commitment doesn’t mean that they’re investing today, but the fact is that there is a clear 79 per cent growth. Yes. So these are the three factors, why I believe private capex is significantly expected to pick up in FY24.

What are some of the pending reforms, business friendly reforms or investment friendly reforms that you would like this government to carry out before the next Lok Sabha elections?
 

I would put it as continuing the journey, rather than reforms to be carried out, because most of the reforms have been announced. If you ask me if I am expecting a big announcement, I would say no. I think it is making sure what was committed and what is happening is getting implemented. But the work, which we expect to see going forward, will continue. One is obviously financing growth and keeping India on the global map. We already have the government working on all FTAs. Now, we would like to see some of them signed. We have the US, the UK, Israel, and Canada. Some, if not all of them, can actually be signed. One thing we already spoke about is the decriminalisation of existing laws.

We have proposed expansion of PLI and a PLI-like scheme for services. But that is not something the government can do in the middle of the year as it is a budget action. So I wouldn't want to say that as an interim action to be taken. I don't think that's going to happen in the middle of the year without a budget allocation, etc.

Would you say that compared to past years, the industry bodies have reduced say in policymaking by the Centre? Have the lines of communication between government and industry bodies weakened?
 

A 100 per cent, that is not the case. In fact, I can say so in every aspect, this government is happy to listen to inputs from us. I mean, even though I am president only for one year, I can tell you for sure that they definitely hear us before any major action has been taken. And I mean, some numbers I can quote. For the budget, for example, we had asked for an increase in infrastructure spending and the government did it. This is not me making any politically correct statement, this is the reality.

One of the things this government has been strong on is privatisation and divestment, especially in the first term. In the second term, we have had Air India privatisation and the LIC IPO. Many other plans seem to be not moving forward. Do we need a renewed push on privatisation?
 

There are two elements to this right. Let us take banks as an example. The government has not put any equity after the recapitalisation exercise. So, in all fairness, we are to accept that if the banks perform, I think we should live with it. But having said that, we are not saying that privatisation should be given up. It should be continued. But I would not pick on something and say please do it today or tomorrow. I think the general trend, like you said LIC and Air India have all happened. But having said that, leave aside the central government for a minute. I think the larger question will be the states’ PSUs and entities.