Advocating for reforms to enhance economic growth, Rajiv Memani, President of the Confederation of Indian Industry (CII) and Ernst & Young (EY) India's Chairman, said that there is a need to increase business competitiveness and bring down production cost. In an exclusive interaction with TNIE’s Arshad Khan, Memani said that geopolitical tensions have slowed down capital expenditure from private companies. He also shares his views on India's growth prospects, the slowdown in urban consumption, and India's approach to global trade negotiations. Edited Excerpts:
You have projected the economy to grow at 6.4-6.7% in FY26. This would be the second year when GDP growth would be less than 7%. Why is India not able to achieve 8-9% growth?
If you have to put one factor, global headwinds are very strong. We have integrated well into the global economy, and relative to what economic growth would be, amongst the larger economies, India would again be the fastest-growing economy for the third year. The growth gap between India and other economies - especially large, mature markets - could be four to five times wider. There are always things we can do better. If we can have some reforms, it will help in accelerating growth. These reforms are needed to enhance business competitiveness, reduce production costs, and significantly improve operational efficiency.
How can India assure to have a win-win trade deal with the USA, given President Trump is adamant to reduce its trade deficit?
I must compliment the government of India first for the amount of time they have spent researching matters and facts related to indigenous industry and sectors that will be impacted by the deal. Even though India is not under any compulsion to make a deal, most business people would be happy provided it is done on terms that are favourable or fair to India. If it is not fair, it is not the end of the world.
FMCG to Auto firms are struggling to make sales in the urban centres. What has led to this slowdown?
Earlier the issue was much more on the rural side, but the demand in the rural sector has picked up. Over the past 12 months, demand in urban centres, particularly among lower- to middle-income households has been more constrained. I would say that the inflation we saw last year impacted consumption and the income growth probably did not provide much cushion. Also, a lot of surpluses in urban centres went into the capital market. This is also one of the factors that impacted urban consumption. Going forward, I do believe that as interest rates come down, inflation eases, urban consumption should pick up, most likely in the second half. We are seeing some early signs of it, at least in the consumer goods space.
Why has the manufacturing sector’s share in India’s GDP not picked up in the last 10 years or so? What can be done to lift it?
One of the reasons why it has not picked up is that the cost structures in India are not competitive. Factors of production, whether it is the availability of land, power cost and logistics, which are coming down should continue to come down. In some critical sectors where India is not competitive, a lot of manufacturing has gone into one country (China). If you have to compete with that country, you have to provide incentives. The cost of capital in that country is almost zero and their build size is phenomenal. India will have to identify which sectors they have a chance to compete and then they can double down on it.
Private sector is often criticised for not investing enough. What would you say on this?
Capex has been good over the last 2-3 years, but has seen a slowdown in the past 6 months due to the disruption that is happening around the world. If I am planning to put up a chemical plant and the price of the main raw material swings from one corner to the other, it becomes very difficult for me to plan a capital expenditure. If you have massive tariffs and geopolitical uncertainty, and then you have some players and some countries playing around with the commodity prices, then you certainly take a step back and rethink your plans. I would say that as geopolitical issues become clearer and India enters into trade agreements, gradually you will see more capex.
India’s economy has doubled in the last 10 years but a lack of employment remains a big concern. How can this be addressed by private companies and the government?
I think that once the economy grows, more employment opportunities will be created. The question is what areas the government and the industry should focus on which are more conducive to employment. That is why labour-intensive manufacturing is very important. Second is skilling. There are many jobs but you don’t have enough skill talent required to get those jobs.
Private companies are often criticised that despite a surge in their profits, they are not increasing salaries. As CII president, would you ask companies to improve wages?
We are in a competitive market. Comparing profit growth with salary growth is not correct because you can have profit degrowth as well. There will be years when profit will be stagnant and then there will be years when profit grows by 30%. Salary growth is mainly a straight-line curve; it is not a volatile curve like the profit growth. In the last two to three years, corporate growth has been good and salary growth hasn’t come out at the same level. It is not the right benchmark to compare. If companies do not provide the right level of compensation to talented employees, it would impact their performance. I think most companies are conscious about this.