After emerging from the Covid-19 pandemic, the Indian economy is at a critical juncture. With global investors considering India a bright spot and the government looking to push exports, the Indian economy is expected to see the highest growth rate among major global economies. The high rate of inflation and poor consumption among rural households and a potential disruption in the form of a poor southwest monsoon due to the impact of the El Niño weather phenomenon, meanwhile, is keeping the industry on its toes. In an interview with BT, R. Dinesh, Executive Vice President of TVS Supply Chain Solutions and the newly elected President of the Confederation of Indian Industry (CII), talked about what the industry expects from the government. Edited excerpts:
BT. What is CII’s take on the current economic condition of the country?
RD: We are optimistic and we expect the gross domestic product (GDP) to grow at 6.5-6.7 per cent in financial year 2023-24 (FY24). There are a few reasons for this. First, the Indian economy came out of Covid in better shape than most other economies. Thus, we believe the potential opportunity to grow both internally and make India a part of the global value chain is significantly higher. Corporate balance sheets, performance of banks, among others, reflect a similar trend. Second, all economic parameters are upbeat. And, most importantly, the government’s focus on infrastructure development has created a virtuous cycle. Also, the cost of doing business is an attractive proposition for global investors. Thus, India is expected to contribute 15 per cent towards global economic growth.
In the long term, India is expected to grow at 7.5 per cent per annum. Unless something drastic happens—such as, say, a Covid-like pandemic or a crisis like in Ukraine, which are beyond our control—the strong foundation that has been laid will surely help us grow faster.
BT: But poor consumption patterns across consumer facing sectors like automotive, real estate, consumer goods, etc, indicate what some call a K-shaped recovery. Doesn’t that bother you?
RD: Yes, you are right. But if we look at the latest numbers—March or April—even the rural market has shown positive growth in fast-moving consumer goods (FMCG). In auto, for instance, if we look at the overall numbers and not just passenger vehicle sales, they are positive. Yes, not everything is hunky-dory but the recovery has definitely not been K-shaped. It’s just that one end is catching up slower.
BT: With the prospects of El Niño growing, what kind of impact does the industry expect?
RD: El Niño is a major concern. But if we consider the historical data, it shows that a bad monsoon has not resulted in bad economic growth in the last 30 years, except in two seasons. However, at times it takes a year to catch up. So, even if the monsoon is bad this time, it may affect FY25 and not FY24.
BT: What are your suggestions for or demands from the government?
RD: Basically, there are three elements. One, the government has done a transformational job and we urge them to continue with that. Two, a key factor will be managing the energy transition because climate change will be an important factor. So, making sure that transition takes place in co-ordination with global players and Indian stakeholders will be crucial. Three, continue with the reforms by building a consensus among key stakeholders and in tandem with key sectors. The CII will support these in different forms by building trust across sectors and with key stakeholders like industry, society, vendors, among others. We will make sure that happens as we call it the right conducive environment for growth.
BT: Many sectors like consumer durables have been very vocal against the high goods and services tax (GST) slab of 28 per cent. Is the CII taking this up?
RD: Yes, we call it GST 2.0. Having said that, the system is working...compared to the rest of the world, we probably have the best digital system for [GST]. Yes, we do wish for that (lower GST rates). But is it going to be essential for India to achieve 6.5-6.7 per cent growth rate? No.
BT: If inflation remains high due to poor agricultural yield, what could be the impact on the economy in FY24?
RD: Inflation doesn’t just harm households, it also harms industry and the overall growth of the country. While the Reserve Bank of India (RBI) has already stated clearly that it plans to keep the inflation rate (consumer price index) below 5 per cent. Our CEO survey shows that 78 per cent of them expect it to remain between 4.5-5.25 per cent. I think we are past the worst of it. So, inflation is definitely a concern and we have to remain vigilant, but it is not a negative.
BT: In spite of fossil fuel prices coming down in the international market, retail prices have remained high. Is CII concerned about this?
RD: I am not that concerned about the rates at the moment because reducing them will affect the government’s ability to spend on building infrastructure. That is the trade-off.
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