Building resilient supply chains and boosting labour-intensive manufacturing, empowering MSMEs are key to India’s global growth, says CII President
Rajiv Memani, chairman and managing partner of EY India, has taken charge as the President of the confederation of Indian industry (CII). In an exclusive interview with the Outlook Business, he highlights the changing geopolitical dynamics and its impact on India Inc., the need to focus on labour-intensive manufacturing and the policy push for greater female labour participation in India’s growth story.
The rare earth issue has raised questions about India’s manufacturing priorities. Do you think it’s time for the government and industry to realign their focus?
The government has been talking about this for a while. Since Covid-19, supply chain resilience has become a very important topic. Countries, including India, are identifying critical raw materials, capital equipment and other items heavily dependent on one or two countries. When there is a lot of concentration, it becomes risky.
Take rare earth as an example—Japan has been working on this for six to eight years and has achieved 40% resilience. Rare earths are also radioactive, so it takes time. The faster we start, the better. Government and industry working together is critical for the country.
With increasing geopolitical tensions and countries signing FTAs (Foreign Trade Agreement) to protect their economic interests, is the world moving toward a more closed economy? How does this affect Indian companies wanting to go global?
Globalisation, as we know it, has changed. Countries, especially the US, are now carefully looking at trade deficits and surpluses. There is caution about complete outsourcing or dependence on one or two countries. Globalisation is under pressure.
However, companies are now increasing trade with countries they trust. The new buzzword is "trusted partnerships," reflected in recent FTA agreements with the Middle East, Australia, the UK and advanced talks with the US and EU.
For Indian companies, this is more of an opportunity than a challenge. Our share in global markets was low and Indian companies are generally welcomed, especially in emerging markets. The Indian brand is strong and trusted, especially in places like the UK. So, FTAs will expand opportunities for Indian companies.
Which sectors or companies are likely to benefit most from these FTAs?
Labour-intensive sectors like auto components, engineering, textiles, toys, etc. These are areas where India has a competitive advantage. Pharma is already strong. Chemical exports are growing.
In defence, if Indian companies build capacity, export opportunities will also grow. The success of partnerships with global majors will also define our trajectory.
Private sector spending on R&D has been in focus for quite some time now. Why do you think Indian industry is not at par with global counterparts?
India ranks pretty low in R&D investment compared to countries like China, [South] Korea or the West. Many Indian companies focus on a price-sensitive domestic market. So, innovation often focuses on delivering value at a lower cost. For example, producing a car that costs $20,000 elsewhere for $10,000 in India, even if with fewer features.
Second, large-scale R&D requires huge capital investments and risk appetite, which many Indian firms lack. Pharma is focused on generics, not innovation. IT is services-driven, not product-driven.
But as companies scale, aspirations grow and FTAs reduce tariffs, quality R&D will become more essential and widespread.
The CII has been advocating for greater R&D investment. If India wants to break out of the low-cost economy trap, investment in R&D is crucial. The government’s recent initiative allocating ₹1 lakh crore over five years for long-term, low or zero-interest loans for R&D is a great nudge. Collaboration between industry, government, R&D institutions and academia is also key. FTAs should encourage international R&D collaborations.
Given the close link between industry and academia, is there a mismatch between the two in driving R&D?
In the West, academics are evaluated on industry adoption of their research. There is funding and incentive for industry-academia partnerships.
In India, academia often works in isolation. Industry has also not proactively collaborated with academia. A lot of research stays locked in labs and isn’t commercialised. The Indian government has focused more on independent research institutions like Defence Research and Development Organisation (DRDO) instead of working through academia.
However, new initiatives like building AI centres of excellence in IITs are steps in the right direction. If we follow that model for other sectors, academia-industry collaboration will improve.
Micro, small and medium enterprises (MSMEs) have become the central focus, particularly after this year’s budget. What are some of the key challenges that the MSME sector has?
MSMEs are the backbone of any economy. Their challenges include scale, access to capital, technology, markets, talent etc. CII is working to help MSMEs adopt technology, sustainability, skilling, etc.
The key challenges include availability of capital. If the government can create a sovereign wealth fund, it will improve a lot of things and schemes like the one announced in the 2019 budget (around ₹10,000 crore) need better deployment. More long-term capital pools are needed. Second, access to market and trade facilitation is more critical for MSMEs than for large companies. The Ministry of Commerce is doing well by including MSMEs in trade delegations and shows. Third, technology & AI adoption is of huge importance. Digitisation and formalisation have improved credit access. Non-banking financial companies (NBFCs) can analyse GST data, balance sheets, trade flows, etc., for lending decisions. Fourth, government credit guarantee schemes through small industries development bank of India (SIDBI) to help MSMEs access loans without heavy collateral.
MSMEs are largely labour-intensive. How can India use its large population to gain an advantage in labour-intensive manufacturing?
MSMEs are labour-intensive but scale is also essential. Production-linked incentive (PLI) schemes help. We need labour laws that are simpler and compliance that is automated and not a hiring burden. India must link its industries to global value chains—like it has done with electronics—and can do in sectors like shoes and toys.
Last, skilling is key. Public-private skilling partnerships will make a significant difference.
A lot of discussion is going around increasing female labour participation in the workforce. What do you think the government and the industry need to do so that India’s growth story has an increased share of female labour?
It’s very important to increase female labour participation. Some companies are already showing the way—like in some Apple plants and medical device plants—where almost 100% of the workers are females.
From a labour law standpoint, there are areas that need attention. For example, building hostels and dorms is essential and state governments can support this, by making them available for regular use. Increasing building thresholds in some areas would also help. These steps can ensure greater female participation.
There is a definite need for a policy push, especially in labour laws. CII has been actively representing this issue because it’s very critical to the success of the overall economy.