Urban consumption not growing as anticipated: CII President Rajiv Memani

Memani talked about issues ranging from India-US FTA to India's complex relationship with China and the labour code implementation

Confederation of Indian Industry (CII) President Rajiv Memani — in a conversation with Ruchika Chitravanshi in New Delhi — said that the financial risk taking capacity of entrepreneurs has come down in the last 3-4 months. Memani spoke about issues ranging from the India-US free-trade agreement (FTA) to India's complex relationship with China and the labour code implementation. Edited excerpts:

 

What are some red flags and green shoots in the whole macroeconomic outlook right now? 

 

All the macroeconomic parameters, from a government standpoint, are strong. Net non-performing asset (NPA) and interest rates are at an all-time low. Inflation is pretty low. Overall, the macro economic system, the financial system and capital markets are pretty robust. On red flags: the speed that one desires urban consumption to grow is not going at the level at which companies anticipated.

 

Outside that, things are more out of India's control: They are around geopolitics, geo economics, the entire global trade situation and how it impacts India.

 

If you're a trusted partner today, and have political stability, which India has, and a clear policy direction, then you would be a beneficiary of what's happening in the world. Relatively speaking, India is in a good position. 

 

The recent Centre for Monitoring Indian Economy (CMIE) data shows a dip in private sector project announcements in Q1. Why are we not seeing a pick up in private capex? 

 

In the last three years, private capex has moved up very well. It has been the normal perception that private capex is not happening. Private capex is happening and happening in a significant way. During the last four-five months, capex has toned down a little bit, largely because of global trade and geopolitics. People just want things to settle down. The financial risk taking capacity of entrepreneurs has come down. They don't want to be sitting on a lot of debt or taking undue risk. It is because the urban demand slowed down a bit, people say. Let's wait for three-four months. A few other things are that the time it takes to get approvals is slightly longer. If that was faster, then you would see faster roll out of capex. The second issue is availability of manpower. Finally, for micro, small and medium enterprises (MSMEs), the availability of capital is a big challenge.

 

What do you think of Foxconn withdrawing its workforce and its impact on the manufacturing sector? 

 

There are different reasons why these things happen. Whether it is because there is a Quad meeting going on, or because India and the US are in active trade discussions — it's very difficult to diagnose the real reason. But on the other hand, you see direct flights between India and China coming back. There is a conversation that's happening where there is some normalisation of trade and business relationships. So, this relationship is a very complex relationship to understand.

 

On the US-India FTA, is the Indian industry ready to operate on lower tariffs? 

 

I would say the alternative scenario for Indian industry is to have a 25 per cent tariff for products that go to the US. The Indian industry is definitely looking forward to an FTA. The main thing is how it looks relative to other countries with which India competes with. From the point of exports, if it helps in opening greater market opportunities, that is a positive. There isn’t a fear of their products coming in. But definitely, when there is a duty rate reduction, to that extent in some industries, competitiveness and demand will get impacted. If India enters into an FTA, which is good or better than most countries, and maintains relative competitive advantage, it should be good for the industry overall. 

 

What do you think about India’s position in the agriculture sector?  

 

If I look at the way FTAs are being negotiated now, a lot of it starts with doing more of a win-win first, and then looks at complex issues later. Some of these areas will come under the next rounds of negotiation.

 

Why haven’t private companies gotten into R&D? 

 

Globally, what companies invest in R&D is huge compared to India. From CII’s standpoint, we have very active engagement with our members on this subject. And in some sectors, there is R&D investment happening in a significant way. But this is one area where the private sector needs to do more.

 

What more do you think needs to be done to have more effective job creation?  

 

We need to have more structural demand aggregation and have a good understanding of what skill is required. Also, what region and sector it is required in, and build pedagogy and skilling infrastructure around that. Skilling will help demand and the supply side to match.

 

Do you think we should expand the production-linked incentive (PLI) scheme?

 

Yes, that's been CII’s recommendation. There's still a long way to go in the utilisation of the existing scheme. We really need to redesign where it's not been that successful, and also areas which are critical from a supply chain standpoint. 

 

Digital Personal Data Protection (DPDP) Act has come. Any thoughts on that?  

 

The government has taken a lot of active feedback. Overall, it seems like a very progressive legislation, very different from what it was earlier. It's much simpler and more compact now.

 

Insolvency and Bankruptcy Code (IBC) has also been under a shadow in light of the recent Supreme Court judgments such as in the Bhushan-JSW matter. What are your thoughts? 

 

Without going into the merits of the case, if you open up something five-seven years after the investment has been made that shakes the confidence quite significantly. Also, in one or two other cases, the decisions that were made by the committee of creditors (CoC) have been overruled. 

 

There has to be time barring on areas on how far back one can go. There has to be a sunset clause for all laws in terms of claims and other things that can be raised.

 

How do you see the Centre signalling that states should bring labour reforms? 

 

CII is actively engaging with different state governments to highlight elements of the labour code which will make them more competitive and lead to more manufacturing. But some states have been receptive.