Pvt investment to pick up from second half of FY24: CII President R Dinesh

'Headwinds are majorly all macro-economic and global issues. The larger challenge is the volatility'

India’s growth prospects have brightened and, with capacity utilisation touching 70-90 per cent in three straight quarters, private investment is set to bounce back, says Confederation of Indian Industry (CII) President R DINESH. In an interview with Asit Ranjan Mishra & Shiva Rajora in New Delhi, Dinesh proposes a green transition fund to manage the climate challenge. Edited excerpts:
 

What are India’s medium-term growth prospects? How do you see headwinds and tailwinds playing out?

At the start of my term (as CII president), I had predicted that India will grow at a rate between 6.5 per cent and 6.7 per cent. Now, after the first half, I am confident to raise the rate to 6.8 per cent. For next year, the growth rate could be 7 per cent, though it will become clearer in the latter part of the year.

The headwinds mostly are macroeconomic and global issues. Volatility is the larger challenge — things that unfold within a week or two. Those are the kind of big challenges we have. The good news is that the negative situation has bottomed out in Europe at least. The US is doing well, and we hope it will continue to do so.

As for tailwinds, some good work has been done on the infrastructure front. The ease of doing business has shifted to the cost of doing business, and the latter has two important pillars — infrastructure investment and digitisation. Also, amid global volatility, India has become a sweet spot. Its large domestic market gives it the scope of becoming an export hub, so there is significant interest among foreign investors. In a way, that interest has continued after Covid.

 

If India’s growth prospects, as you highlight, are bright, why has India Inc become risk-averse? With private investment not growing, we seem to be relying solely on the government's capital expenditure.

Capacity utilisation across sectors has been 75-90 per cent for three straight quarters. That is not possible without private investment. The second and the more important thing: A majority of our members said in a CII survey that they expected private investment to go up in the next 12 months, including in the second half of 2023-24. I don’t think the present growth is on account of government capex alone. The government capex has taken the lead, of course, and that is what has made India a sweet spot.

Why has private investment not taken the lead?

Let me put it differently, speaking as a businessman, not the CII president. Consider the geopolitical uncertainties, and the fact that we have just come out of the Covid period, when everyone wanted to be careful. When there are sudden global events that you never planned for, there is bound be some fear. Now that we have had three quarters of robust capacity utilisation, I expect private investment to pick up.

With inflation now moderating, when do you expect the central bank to change its stance and begin a rate-cut cycle?

The Reserve Bank of India (RBI) has clearly articulated 4 per cent as its inflation target. We are not there yet. India has stood out in managing inflation and balancing growth. We are not asking for rate cuts now. We have managed high growth even with a high level of interest rate. Our position today is pause and hold. If things ease by next quarter, we might ask for a rate cut. However, we are seeking a stance change to ‘neutral’.

The stock market responded positively to the recent state election results. What does it mean for India Inc?

CII has always advocated a continuity in policy, focus on sustainable growth and development across the board. This government has really walked the talk on its commitments to these. For us, continuity is important, and, in a way, the stock market is reflecting that.

All political parties promised freebies in their Assembly election campaigns. There has been a debate on sustainability of these. What is CII’s stand?

CII’s stand has always been development for everybody. Any welfare measure that supports people is good, as long as fiscal consolidation is taken care of. We need inclusive and equitable growth. In his inaugural B20 speech, the Prime Minister said we needed to invest for the future. We support the right welfare measures.

Rural distress remains a concern, and economists have flagged a K-shaped recovery. Is that a worry?

There are several factors. First, there was uneven distribution of monsoon and certain pockets in rural areas suffered. Second, if you look at certain consumer durables sectors like two-wheelers, our members expect rural demand to improve in the second half of the year when compared with the first. So, the distress in the rural economy is both region- and sector-specific. There is more positivity now in the second half.

 

Concerns have been raised about the performance-linked incentive (PLI) schemes due to a lacklustre response in some sectors. Are you engaging with the government as it works to tweak some of these schemes?

PLI as a scheme is essential because it acts as a catalyst. But it is unlikely that someone will invest only because of PLI. Certain sectors have done well. It is a continuous process, and we are working closely with the government to see if any tweaking is required. Not just PLI, we are also looking at the ELI (employment-linked incentive) plan. The scheme can be tweaked for sectors with a huge employment potential, such as tourism and medical healthcare.

Which big-ticket reforms do you expect from the government after the general elections next year?

First, continuing the fiscal consolidation road map, without losing focus on the infrastructure push. Employment generation is another. It is necessary to build competitive federalism in the system to achieve reforms required at the state level. A body like the GST (Goods and Services Tax) Council could perhaps help in that. And, lastly, the digitisation push should be continued. That is the big differentiator for us. We should also focus on the new-age tools like artificial intelligence.

The European Union (EU) has imposed a carbon border adjustment mechanism (CBAM), and many countries are expected to follow suit. What should India Inc do and what measures do you expect from the government? 

There are three elements to the climate issue: Transition, goal and financing. The goal is quite clear. Transition — and funding this transition — is the big challenge.

We at CII have talking about a green transition fund similar to the National Investment and Infrastructure Fund. Both the government and industry could pool in. The government could put in the seed money and industry could then contribute to the same. The main challenge is supporting the micro, small and medium enterprises (MSME) sector. The large corporations will have to play a role there — get access to this fund and support supply-chain partners, so that the MSME sector can also manage the green transition. The third issue is to strike a balance between this transition and growth. We will have to work out the details.