“Increased consumption in the second half of the year will stimulate investments” – Industry News

The share of private sector capital expenditure in the country’s GDP, which has increased to 23.8% in FY2023, will only increase in the future due to several second-generation reforms that the government will implement, increase in consumption levels and India’s inclusion in global value chains, Sanjiv Puri, president of the Confederation of Indian Industry (CII), told Priyansh Verma in an interview. He said internal industry estimates show capacity utilization rates in many sectors are above 75%, which will lead to new investment. Fragments:

Private sector investment spending has not increased as much as it should have. What is the next solution?

Private sector investment outlays are in positive territory. In 2020-21 it fell to 20.7% as a share of GDP, but in 2022-23 it rose to 23.8%, higher than pre-Covid-19 levels. I believe this trend will continue and this is due to a number of enablers – corporate tax rationalization, PLI scheme, ease of doing business, emphasis on logistics etc. Also India is slowly integrating into global value chains. There is certainly interest in diversifying the supply chain.

For some other interventions, such as signing more free trade agreements and implementing second-generation reforms, private investment will only increase from here. Beides, India is a large consumption-based economy, so we see that overtime consumption should show better results. The monsoon would be better this year, so there will be an increase in consumption in the second half of the year, which will also help investments.

What will rural consumption look like this year?

Industry reports “green shoots” of recovery. With monsoons above normal and improved farm incomes, consumption is expected to improve. We recommend increasing the allocation of public expenditure to rural areas – in terms of housing, irrigation, storage or infrastructure enabling physical connectivity. All this will give impetus to rural consumption, develop the rural economy and increase its production potential.

FMCG (Fast Moving Consumer Goods) is quite hopeful that consumption will pick up in the second half of FY25. Improved monsoon is also expected to result in moderate levels of food price inflation.

Do you recommend increasing public spending in the full budget?

We suggest that public spending in the budget should increase by 25% year on year. According to mid-term budget estimates, the increase will be around 17% (compared to the CO24 financial year). This is because infrastructure investments have many multipliers, which makes the economy competitive.

An increase in public spending also benefits private spending, both directly and indirectly. Directly because infrastructure-related sectors are gaining momentum, and secondly, they are creating jobs and increases consumption, which helps start a virtuous cycle.

According to an RBI study, the current capacity utilization is around 75%. What are the industry prospects?

Our internal research shows that capacity utilization in most sectors exceeds 75%. Some sectors reach 80%, others 90% (e.g. cement, steel and cars).

Infrastructure-related sectors and electronics-related sectors such as renewables and electric vehicles will see investment.

What is your assessment of the PLI program?

Available data and industry feedback tell us the program is working well. This has led to job creation and investment. But there is room for improvement. We expect that the program should cover labour-intensive sectors such as toys, clothing, retail, media and tourism.

What are your recommendations for a full budget? What areas should the government focus on?

Some of our key recommendations include: increasing spending on public purposes (increase by 25% y/y), creating an action plan to increase investments in health and education (up to 3% and 6% of GDP respectively) and provide greater resources for skills.

We recommend that the government launch employment incentive programs with appropriate performance indicators for labor-intensive sectors with high growth potential. Great reforms of land, labor and power are also very important. Labor codes should be reported as soon as possible. It simplifies regulation and releases production potential in this segment.

We also recommend rationalizing the capital gains tax structure by unifying tax rates and holding periods for various types of instruments.

Do you believe a Narendra Modi-led coalition government would make it difficult to implement major reforms?

We believe that the pace of reforms should only accelerate. Our growth forecast of 8% in FY25 is also based on the assumption that the pace of reforms will only accelerate. The previous set of policy interventions have produced results, which should certainly reassure everyone that this is the right path.

Some FMCG companies are largely turning to premiumization across categories to grow their businesses. How do you see this secular premiumization trend?

India, or Bharat, is currently a very aspirational society, which is reflected in the choice of premiumization. This will only continue.