Given that micro, small and medium enterprises (MSMEs) are the engines of India’s economic growth and employment generation, the Confederation of Indian Industry (CII) has suggested that the government create a green transition fund for the sector. “The government should also consider an employment-linked incentive plan to boost job creation,” CII President R Dinesh tells FE’s Prasanta Sahu in an interview. Edited excerpts.
The government’s strategy of investment-led growth meant it has had to do the heavy lifting as Corporate India remained wary. Now, the fiscal space is constrained too. Why is corporate investment slow?
We can’t have that 11% investment growth in the second quarter (Q2FY24) without some significant private sector capex. For three continuous quarters, we have had between 75% to 95% capacity utilisation (in various sectors). In virtually every sector, (the capacity utilisation has risen). The majority of CII members in a survey said that in H2FY24 private-sector investment is going to be higher than the H1. So, given anecdotal evidences, I do believe that with this kind of capacity utilization, and the focus on increasing the spending, the private sector investment will accelerate further.
Post-demonetisation and pandemic, there is a shift in business away from MSMEs to large firms including e-tailers. Is this sustainable for India?
I think that it is not the right way to look at this. India has significantly benefited from greater formalisation and not just the large corporate groups. The kind of tax collection and therefore the utilization of that money for the infrastructure spent have all risen because of that. More than 70% of our members are MSMEs. I call them livelihood businesses. The support of these MSMEs and ensuring they can grow is very important and we continue to focus on that.
The government has had a significant focus on supporting MSMEs, including by ensuring credit lines. An important aspect is sustainability and the transition. So, one of the things which we are suggesting not for the short term, but for the medium term, is to create a green transition fund for MSMEs on the lines of the National Infrastructure Investment Fund.
With India’s economic growth likely at 6.8% in the current financial year compared to our earlier estimate of 6.5%, there will be a rub-off effect on MSMEs’ growth also.
What is your outlook on the consumption scenario given the weakness in private final consumption expenditure (PFCE)?
We shouldn’t worry too much about what happens in one quarter (PFCE grew 3.1% in Q2FY24 vs 6.1% in Q1). The broad trend and the theme are correct. If the government maintains infrastructure spending, has fiscal discipline and supports employment, then automatically it will have a ripple effect on consumption. As equitable growth opportunities get created, the speed of growth also happens because of that. Looking at broad economic parameters, all of them are in a very good state, especially when compared with the rest of the world.
Household savings are at a low ebb. How does it augur for the economy?
I usually look at the reverse of it. Look at the flow into the mutual funds and the capital market. Access to various instruments is what we were all looking for. So, rather than just one metric or one household savings instrument, it should be broad-based. Rather than it being just what I call bank deposits or whatever you want to call that, that money is getting into productive use when it comes to the equity markets, for example.
What is your expectation from the interim/regular budget?
As a broad theme, we are saying that continuity is critical. So, the government should stick to the fiscal discipline and make sure we have the focus on infrastructure continued. The capital expenditure as a percentage of GDP should be maintained. Employment generation should be a strong focus. We can have an employment-linked incentive plan along the lines of a production-linked incentive plan (PLI). Such a scheme would support employment generation, especially in sectors like tourism, logistics, health care, etc.
What kind of revamp is needed for GST?
That’s something which is an ongoing exercise. But of course, the revamp may not happen before the elections. CII has already said that we need a three-tier tax structure.