Tailwinds are stronger than global headwinds… economy will grow faster: CII President R Dinesh

A: So, the way I would look at it are three things. One, let me say, 100 per cent I mentioned that there are headwinds, especially from the global side. If you look at the advantages, or what I would call as tailwinds, we believe that tailwinds are stronger than headwinds, therefore, we will grow faster. But having said that, let us look at fundamentally what has happened. First, the base or the platform of the structural reforms, the various actions which the government has been taking in terms of preparing, so first is the ease of doing business, then it came to the cost of doing business. And everywhere, you’re seeing significant progress being made in terms of that first step. On top of that, if you look at the three pillars, first is the domestic demand. And I’m not talking about growth in domestic demand, it’s the domestic demand availability itself, which is bringing in people to look at India as a market. As they come in, then they see that their infrastructure spend is so huge, which I think the government has done a great job of focusing on, so that then propels our domestic demand, they have come in and invested for the domestic demand. And they say that now my cost of doing business is going down, so I can export more. And therefore, we start becoming part of the global value chains.

So, this virtuous cycle has started in almost all sectors. And with a continual focus on infrastructure spend, I would say there is a huge level of comfort that we won’t see any domestic issues. The second is Indian corporates, banking sector. I don’t think we have ever had healthier balance sheets, debt has been very low, so that then further adds or further refines to that ability to grow. Having said that the risks are global…as long as you don’t have any negatives in terms of any more escalation in the Ukraine crisis or anything new like that happening, the oil maintains reasonable levels of pricing. If we take that as more or less, as of now, no visibility of anything changing, while in the previous three years, by February itself, you knew after the budget that they were happening. That’s why I think we are much more comfortable in terms of the tailwinds overtaking the headwinds.

Q: There seems to be a rural-urban divide, which we have seen lately, especially in the auto sector, we are seeing that two-wheeler sales were not up to the mark. In the past few months, they have lagged behind and rural demand has been a concern. How big is that a concern in your view? For April, the figures are suggesting a pickup in two wheelers, so how do you look at that part? Is it driven by wedding or the harvesting season demand? Or do you think that is sustainable?

A: I think the question is a very good one. If we had been sitting here maybe in March, I would have said, I don’t have the answer because there were still doubts. But if you look at the data in March, if you look at data in April, and definitely in May, you actually see rural demand having come back, very strongly. Not auto alone, I’m talking about FMCG, even to a certain extent FMCD. So all of it shows very clearly that post-January, February, was iffy, but we saw the growth in March, April, May. So it is now four months of steady proof that rural demand is very much there. The view that it was K-shaped etc, or maybe for a shorter period of time, and it would have been psychological or it would have been other issues. We don’t know the exact reasons why. But today, if you look at it sitting here, I don’t think that is any more true, that rural demand is lower.

Q: The reasons could have been psychological?

A: I’m saying earlier because of COVID and all. I don’t know the background of each month, how it was…

Q: But for whatever period, there was a K-shaped recovery

A: We were not sure. We didn’t have the data to say that rural demand was really going up because you don’t exactly know. You know only from sector to sector.

Q: What about the unseasonal rains? They might have affected the harvest. Do you think that would affect rural demand in some way? Have your revised GDP projections factored in these unseasonal rains?

A: See the right way to look at it is this is a very short period, right? And this is not the real, I would call it a direct crop period because it would have been summer anyway otherwise. So I don’t think that is going to affect us. Obviously, the behavior of the monsoon post, we don’t know whether this will affect that. I don’t have an answer for that because I’m not from the weather side. But what we have heard and I have seen play out in many years in the past also is that every El Nino year is not necessarily a bad year for us. And this year, from both IMD and everywhere, you’re hearing that the Indian Ocean dipole and the Madden-Julian oscillation, so both of them mean that some areas may be affected, but it won’t be the whole of India. So that gives us a greater comfort from the point of view of this. So to answer your question, I don’t think what has happened in the last month or (is happening) this month is directly going to affect the economy, unless it’s going to have an impact on the monsoon going forward.

Q: One of the things which is being cited is the high capacity utilisation rate, it has been over 74 per cent from last two quarters. In this scenario, how do you assess the situation when consumption growth hasn’t been very strong in the last quarter, when the growth was 2.8%. How do you assess this situation where capacity utilisation or investment rates are high, but there is not a commensurate increase in consumption?

A: No, I don’t want to correlate the two data because then there is an export element. And there is also a buildup for future sales. So directly, if you look at demand, March, April, May, and see you’ll always have one or two sectors, which are showing a downturn. But if you look at broad sectors, all of them have clearly shown an uptick. So to go back to your question, can you say that there is a curve which is showing that demand is not going up? No, it is actually showing it is going up. So I believe that that is a fair reflection of the capacity utilisation. And don’t also forget that the infrastructure spend, and many of the sectors are all supplying products to the infrastructure.

Q: In the infrastructure spend that you’re talking about the government spending levels are up, Centre has also exceeded its targets. But what about private capex? Do you think it is up to the mark right now or there needs to be more activity from the private sector?

A: Capex spending, I already told you…once you reach 75 per cent and 80 per cent, obviously, you will see that they will want to invest now. I don’t want to hazard a guess and say it’ll happen in two months, it’ll happen in three months, but definitely one should touch 75 per cent. I think history has proven all across that people now speak about coming in with fresh capex.

Q: What are the signs of fresh capex?

A: One data which we have is the CMIE data. If you look at the commitment to capex… there’s a significant 79 per cent growth, commitment increase. And obviously, commitment doesn’t mean tomorrow they are going to invest, but that clearly shows the intent to invest. That’s why I’m saying six to nine months from now, you should actually see the effect of that happening at the ground level.

Q: Over the last few months, one of the things which we saw was about input cost pressures, which affected the margins in some way. Margins are improving now. How do you see that percolating down from producers’ side to consumers’ side also?

A: Obviously inflation hurts everybody. Both from a consumer side as well as from a company side…there are two issues: one, 72 per cent of our annual CEO survey, have confirmed that they see actual inflation between 4.5-5.5 per cent. So both from expectation and from what they are seeing currently, I think we don’t see inflation as becoming an issue for either demand or for input costs. The second obvious issue is what is happening globally, that is not in our control. And that’s why I said, that there is a headwind side, which we can’t control. As of now, we don’t see anything negative, let me put it that way.

Q: When we talk about the input side, one of the crucial factors is wages, which many have commented that real wages have remained stagnant over the last few years, especially for the rural sector. So in that scenario, would you still have a very positive view about rural demand?

A: You’re right. Basically, it is like this: can you expect new demand without inflation coming down? May not be, but replacement demand will still be there, normal activity will still continue. And let us not forget that we are not speaking about a small percentage of people available. Frankly, is that a worry? No. Let me put it that way. And I think it is, it’s all a question of your balancing input costs, which includes wages, so as you see other input costs coming down, it doesn’t necessarily mean that wages cannot go up.

Q: Few months ago, reverse migration not happening fully was a concern. How is that situation now? How is the industry seeing that?

A: We don’t have the data for that. But anecdotally, I can tell you…from the supply chain sector (perspective), I can tell you that I don’t see any gap in terms of that we don’t have people available for a particular type of a job, say ,drivers or something like that, that is not an issue today. That was there till maybe not even October, I will say by August, September onwards, it started improving quite significantly. Maybe there will be certain pockets which will still have issues. But this is not dramatically affecting business…but the challenge will always be there because we are speaking about significant people movement.

Q: How do you see employment prospects? Female urban employment seems to have been affected by resumption of work from office. How do you see the debate playing out over work from office and work from home?

A: I don’t have data to prove it. But anecdotally, I think it’s not so. I think there are very, very small percentage of the people who do have an issue. Maybe in the developed world, that’s a different issue. But here in India, I don’t see that as being a major issue. But to go back to your core question of employment, yes, it was a challenge last year, but if you look at the third quarter to fourth quarter, you do see a significant uptick. Data which we had in the PLFS survey, if you look at it, the female unemployment rate came down from 10.1 per cent to 9.2 per cent and this is a Q4 comparison. If you look at from Q4 to Q3 directly, as per CMIE data, from 8.1 per cent it has dropped to 7.5 per cent. So, both data actually show that at least there is progress, I won’t say that it is 100% the best case scenario where we should be.

Q: When you talked about healthier balance sheets, on banking and industry side, there was this inherent assumption that industry will step up after the corporate tax cut. And there was a lag. The government has also earlier expressed that the animal spirits are not being unleashed. So what do you have to say on that part? Has that commitment been met by the private sector?

A: No, I can’t say it has been met. But I think visibility is definitely there. And I think in the same meeting, when the FM mentioned more animal spirits, she specifically also considered that maybe the time was also not correct. In the sense, the demand had not caught up. And you can’t expect that to happen…let’s also not forget, both demand and production are linked to how perceptions are. And that’s why even when we look at the RBI, we were saying change to neutral, because it’s a perception requirement. As long as they put a pause, it doesn’t matter what stance they have. That moment, they say it’s neutral, people think okay, the future is going to be better. So the same way, the global uncertainties were something which every corporate board would have thought about and said, does it make sense for me to go ahead and try to do something right now? That’s why I said the last three to six months, I think that seems to be kind of settling down to a level. Yes, there are always going to be some issues, US debt issues or whatever it is, but nothing which is dramatically changing. Unlike in the past, where literally every three months or every six months, you were seeing some major shock.