India’s Growth Story Intact; Next Set of Reforms Now in Focus, Says Sanjiv Puri

India is expected to grow over 6% despite global headwinds. How vulnerable is it to external shocks going forward and what reforms are needed to push this growth?

Despite this uncertainty, India is growing at about six-and-a-half per cent, let's say last year. That explains the strength of the economy, which is built on a lot of good policy measures that have happened in the past and the investments Indian industry has made. Resilience is strong in the industry.

India's economy is more consumption-driven; exports account for only about 12% of GDP. Nonetheless, these uncertainties do have an impact, despite the slower growth in global markets and dumping of products from countries with excess capacity into India.

Despite all this and trade-related uncertainties, six-and-a-half per cent growth was achieved last year, and 6% is expected this year. There's also a forecast that there could be an impact of 20 to 30 basis points if [US] tariffs were come through, but that's under pause. So that's not there. I think India will have a good growth position. In the short term, interest rate easing, benign inflation, better monsoons and crops, the income tax relief, investments that have started to pick up since the second half of last year…the cumulative effect of all this will also benefit the economy and we should start seeing the benefits of that in the second half of the year.

Now, continuing the journey of growth and competitiveness, and that's the spirit with which the government has also been approaching it. Reforms have happened, but the next set of reforms are now in focus, including some important ones like the National Commission on Regulatory Reform and National Mission on Manufacturing. What also needs to be done is the factor market reform.

CII is suggesting to create GST-like councils to build consensus on reforms. Then bringing a boost to labour, with a high employment intensive sector. Agriculture is one of them. These are the building blocks of digitisation, farmer collectives and bringing technology into farming through initiatives like farming as a service. And then building resilience in agriculture, I think these are all important steps that will help build agriculture and there's huge room to grow there. Second important area is a larger revival in manufacturing but more importantly, labour intensive manufacturing like apparel, footwear. FTAs [free trade agreements] will certainly help these sectors. What we are also suggesting is PLI [production-linked incentive]-like schemes for this sector.

The contribution of manufacturing to GDP has been stagnant for a long time despite efforts like Make in India and PLI-scheme. What are the structural bottlenecks?

I think we are, after a long time, seeing some revival in manufacturing. Even our export basket is diversifying. Some good steps have happened. We need to build on them and take similar steps in other areas. It is in that context that we spoke about the levers for further growth in competitiveness…like FTAs and labour-intensive sectors. These are the things that will help us increase the share of manufacturing in GDP. And if you look at the global situation, the world is looking towards resilient supply chains. They want supply chain diversification. So the FTAs and more focus on competitiveness, as well as the regulatory issues, that will provide more and more impetus. It's not that it's not happening right now; it's only a question of accelerating the trend.

Private investment has remained stuck at around 11% of GDP, even with corporate tax cuts and strong balance sheets. Why has the pick-up been so slow—and when do you expect it to accelerate on the ground?

If you look at the CMIE [Centre for Monitoring Indian Economy] database, project announcements are three times what they were pre-Covid. That’s a significant move forward. Secondly, even the government’s forward-looking capex survey shows significant upward movement. I can also add that in our last CII survey, a larger percentage of members said capacity utilisation is between 75-100%, which indicates it’s time for investment. Corporate balance sheets, liquidity, banking system balance sheets–all these are in good shape. So, I think the fundamentals for investment are very much there.

Some caution may be coming because of some of these external uncertainties. But otherwise things are largely in the right direction. I can't give you a figure at what rate it [private investment] should happen. We haven't done any modelling on that. But certainly, private capex as a share of GDP has to grow at a faster rate than economic growth, that's how the share in the GDP will keep increasing. The GDP is growing at six-and-a-half per cent, so it has to be much more than that.

The announcements are there, so the intent is there. What may be holding these back…maybe some caution or some are still in the pipeline. As we ease some of these regulatory areas, the investment translation process can also become faster—the time it takes to start up, acquire land, get approvals and so on. Once those become simplified, the translation of that can happen faster. Announcements also show the intent and the opportunity is there. It’s a journey, it is a marathon.

How critical are FTAs in this—and how do we ensure they translate into real manufacturing gains?

They are very important. As an economy, structurally, we have more domestic focus and 60% is consumption. Exports are only 12%. So that component in GDP has to go up. And our share in global merchandise exports is under 2%. So if we are to increase that, we have to integrate with global value chains and I think FTAs certainly provide an impetus to being able to do that. So, very, very important, from India's perspective.

There’s been concern about weak consumption demand. What signs are you seeing of a revival—both rural and urban?  

Rural is picking up, urban is picking up. But because of the factors that I spoke about earlier, we do expect things to start improving in a couple of quarters. I think, at an aggregate level, both should go up. In food also, there is this shift from loose and unbranded to branded, which comes with better quality and hygiene. So both will improve and then discretionary spending should also go up.

Piyush Goyal recently raised questions on if India was settling for low-wage gig jobs. You have also spoken about the quality of jobs. What do you think needs to be done?

We have to improve employment in the formal sector. The way to do it is to focus on increasing the number of jobs in formal sectors and we also need to improve the quality of incomes in several other sectors. For formalisation, I think, one of the ways to do it is larger, labour-intensive manufacturing and farm incomes because that can involve a lot of people and provide a boost to consumption. It can set up a virtuous cycle of consumption, investment and employment. Additionally, I believe that India needs to dial up its investment in R&D.