The newly formed Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) government should prioritise spending on rural infrastructure, says Sanjiv Puri, president of the Confederation of Indian Industry (CII) and chairman and managing director of ITC.
In an exclusive interaction with Outlook Business, Puri says the government should boost allocation for irrigation and cold storages. He also speaks about the expectations from the first Union Budget of Modi 3.0.
Edited Excerpts
What expectations does industry have from the first budget of the new government?
The first budget of a new government is always something to look forward to with great interest as it provides a sense of policy direction. We expect continuity in economic strategy and a reform focus. The expectation is of higher capital expenditure with equal emphasis on fiscal consolidation to continue. We hope the fiscal deficit target of 5.1 per cent of GDP (gross domestic product) as mentioned in the interim budget should be maintained. Strong public capex (capital expenditure) has been one of the main drivers making India the fastest-growing economy in the world, so this emphasis should continue. We are suggesting the capex should be increased to about Rs 11.9 lakh crore (an on-year increase of 25 per cent) instead of Rs 11.1 lakh crore (an on-year increase of 16.8 per cent) as proposed in the interim budget.
We would like to see higher spending in rural areas, especially on productivity-enhancing initiatives like irrigation, creation of storage infrastructure and the PM Gram Sadak Yojana to support the rural economy for inclusive growth. The focus should be on providing greater non-farm employment to rural youth and industrialisation of rural areas. We are hoping for an increase in allocations for healthcare and education including vocational education and skill development.
The government can announce comprehensive policies for some employment-intensive services sectors such as textiles, toys, wood-based tourism and retail. Besides, the housing sector is a big growth multiplier. CII has suggested extending the interest subvention scheme available on low-cost housing to cover total housing cost of up to Rs 35 lakh instead of Rs 25 lakh at present. The expectation is also for the announcement of a fund to promote green transition of business, especially MSMEs (micro-, medium- and small enterprises).
Manufacturing’s share in India’s GDP has been stagnant despite campaigns like Make in India and production-linked incentive (PLI) schemes. The Union government claims India’s manufacturing space is set for a transformation. How will the next five years be different?
It is important to differentiate between stagnation of the sector and stagnation of the share of the sector in the GDP. The share being stagnant means it is growing at the rate of the GDP, which is quite impressive given the high GDP growth rate India is witnessing. Developing manufacturing is a long-drawn process especially when starting from a low base. The sector is witnessing transformational changes which will further accelerate in the next few years due to the work done over the last decade as well as some external factors.
The sector used to face huge disadvantages due to high logistics costs, high tax rates and a complex regulatory system. We have seen great improvements in each of these areas. The government has been successfully focusing on strengthening ease of doing business, lowering corporate taxes, [reforming] the IBC (Insolvency and Bankruptcy Code) and bringing about logistical efficiencies. Now, reforms pertaining to land, labour and power will further improve the ease of doing business, helping the sector unleash its inherent potential.
PLIs are acting as a catalyst for manufacturing. The interest we see from foreign investors is unprecedented in investment and sourcing. Overall, the confluence of a proactive policy regime, improved ease and cost of doing business, globally competitive tax rates, increasing domestic demand, realignment of global supply chains due to geopolitical factors and India’s global reputation as a reliable and capable player has created an opportune environment for the growth of the manufacturing sector in India.
What economic reforms should be part of the new government’s agenda to make India a manufacturing hub?
Going forward, the CII has suggested the setting up of a ‘Mission on Advanced Manufacturing’ to make Indian manufacturing future ready. The mission should focus on encouraging research and development (R&D), skill development, innovation, start-ups and global collaborations in advanced manufacturing technologies such as additive manufacturing (3D printing), robotics, automation, artificial intelligence (AI), Internet of Things (IoT) and nanotechnology.
To promote green manufacturing, inter-ministerial groups to develop sectoral net-zero roadmaps, in consultation with industry, could be set up. Sectors to be taken up in the beginning could be those with the highest emission footprint, such as chemicals, metal and cement. The roadmap should look at all aspects such as technology, financing, circularity and skilling. For financing green growth, the government can announce a green transition fund which can use innovative financing methods and market development tools to leverage private sector participation, enable decarbonisation and build resilience.
On the taxation front, bringing GST (goods and services tax) under a three-rate structure with moderation of rates and bringing petroleum products, electricity and real estate under GST should be expedited in consultation with the GST Council. The government should continue to work on simplification of regulatory procedures while bringing transparent and predictable policies to facilitate ease of doing business, reducing costs of power, logistics and freight to enhance manufacturing competitiveness. Priority should be on getting time-bound clearances using the National Single Window System (NSWS) and deemed approvals where feasible.
How can the new government boost consumption and create jobs for more sustainable and inclusive growth without straining the fiscal deficit?
India’s domestic demand is providing a strong buffer against looming global challenges and appears robust. Private consumption, which constitutes around 60 per cent of aggregate demand that shrunk during the Covid-19 years, is recovering steadily. This is mirrored in the growth of high-frequency indicators of urban demand including retail sales of passenger vehicles and domestic air passengers which grew by 7.7 per cent and 4.6 per cent respectively in April and May. In addition, the consumer confidence survey of the RBI (Reserve Bank of India) for May also pointed to elevated consumer confidence.
Rural demand is also reviving, supported by improvement in farm sector activity and growth of retail two-wheeler sales and green shoots in FMCG (fast-moving consumer goods). Moreover, forecasts of [an] above-normal monsoon by the IMD (India Meteorological Department) are expected to strengthen agriculture sector activity. Food prices could be moderated due to timely and well-distributed rains this year. The government would do well to invest in rural infrastructure and encourage diversification of agriculture towards value-added crops such as horticulture, dairy and fisheries to improve farm incomes.
Farmers should be incentivised to move beyond paddy and wheat. The capex allocation for boosting rural infrastructure in areas such as irrigation and cold storages will boost the sector and create agriculture service-related employment. These opportunities can be created by developing rural industrial parks, especially near industrial corridors and smaller smart and planned cities with first- and last-mile connectivity to markets.
The PM SVANidhi Yojana, which provides working capital to street vendors, should be expanded to rural and semi-urban areas with an extension beyond December 2024 to provide a greater number of non-farm employment opportunities to rural youth. Last but not least, improving health and education outcomes of the populace in both rural and urban areas by increasing outlays under the two heads would play a critical role in upgrading the quality of human capital, which would eventually contribute to a more employable workforce.
Do you think a coalition government will impact the pace of economic reforms since 2014?
In the past, the government announced a slew of big and transformational reforms which have set India on a high growth path. Proactive measures have created a conducive environment for industry to undertake investments. As a result, the Indian economy has continued to remain the fastest-growing major economy for the third consecutive year despite global headwinds and we see a rebound of private investment which is likely to strengthen going forward.
The industry expects policy continuity with the new government assuming office. In addition, we also expect the government to usher in more transformative reforms. We believe the focus areas for the new government would continue to be macroeconomic stability, fiscal management and inflation control. It would continue to pursue the goal of making India a global manufacturing hub in mission mode by improving ease and cost of doing business while adhering to stated sustainability objectives.
