The production linked incentive (PLI) schemes initiated by the government will boost India’s manufacturing prowess over time. Subhrakant Panda who takes over as president of Federation of Indian Chambers of Commerce and Industry (Ficci) told Shubhra Tandon that though in the right direction, the scope of these schemes should be broadened to include more high export potential sectors. Excerpts:

Q. What are the key opportunities and challenges for the Indian industry in the post-Covid environment?

I think the PLI schemes have been very well thought through and drafted targeting sectors which were high import dependent or were leading to unnecessary outflow of foreign exchange. Nature has decided that we need to import oil but why should we have an electronics import bill which is at par or higher than oil. So, to that extent white goods manufacturing or mobile phones etc has done well in India and by the end of the decade we will be one of the top exporters of these items. Also, port proximate manufacturing clusters as planned will be highly efficient from a logistics point of view and enhance manufacturing competitiveness. If I we were to look at the challenges, India is as well prepared as it can be. The World Bank has recently upgraded growth forecast for 2023 from 6.5% to 6.9%, but the globe is headed towards a recession. One-third of the world’s economy is facing recession with two consecutive quarters of negative growth which will have an impact on us, because we are neither an island nor are we de-coupled from the rest of the world, and we are seeing that.

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Q. There are sections of the industry which are saying that manufacturing is still not taking off in India despite the government’s policy intentions. What are the gaps according to you?

Manufacturing sector is very important for the country because currently we have situation where agriculture is 16-17% of GDP but forms 45% of jobs. While we have a robust services sector, but it is important for manufacturing to step up. Manufacturing itself has been stubbornly around the 15-17% mark for the last two decades. It is important for manufacturing in India to account for at least 25% if not a little bit more. But it takes a bit of time to turn around a big ship. Unlike previous subsidies which were just meant to keep a sector alive but not thriving, PLI schemes provide the initial boost and thrust that is needed to attract investment and get things off the ground  and create global manufacturing champions. So, I believe this will have an impact on manufacturing sector and we need to give it some bit of time.

Q. So, if the government is boosting its capex spends and bringing in policies to boost industrial growth, why is private capex not taking off?

Private sector capex is steadily increasing and is more than a trickle and will gather momentum going ahead. In the second quarter the valuation of private sector investment was Rs 3.3 trillion, which was around Rs 2 trillion in Q2FY22 and in Q2FY21 that figure was about Rs 1.2 trillion. Looking at the Q2 manufacturing survey of Ficci about 61% of the respondents are showing higher production and the average capacity utilisation is 70%. Some sectors are at 90% plus, like textiles, paper and automotive and auto components. So, lot of announcements are in the auto sector because there is hardly any room left. But when you talk of an average of 70%, that means there are  certain sectors at 50-60% capacity utilisation where investments are not warranted. As the economy continues to bounce back and grow and capacity utilisation in sectors crosses that 75%-80% mark you will see investments happening, which is already happening like alluded to. Also, there is a hidden element. Private capital has gone towards around Rs 8 trillion worth of cases in NCLT where ownership has changed hands, and either idle capacity is being brought back to life or units which were not getting attention have been de-bottlnecked by private companies.

Also Read: More PLI schemes in the offing: Piyush Goyal

Q. To your point about capacity still at an average of 70%, what is the demand outlook like?

Certain sectors have seen a lot of pent up demand like the automotive. However, interest rate hikes are meant to have an impact on aggregate demand but having said that positives certainly outweigh. About 40% of respondents in the Ficci manufacturing survey said that they are increasing capacity at least by more than 15% in the next six months. Also rural India jobs under MNREGA have increased because of seasonal factors but y-o-y there is a contraction which shows there is now jobs available which was not there during the pandemic years and the lockdown.

Q. But the EPFO data shows there is a decline in formal jobs creation…

We need to wait and watch whether this is a one-off for this month or is it a trend. I wouldn’t go by the data for just one month.

Q. What needs to be done for more robust jobs creation?

As far as jobs creation is concerned, ultimately growth has to be sustainable and inclusive. From that perspective, I will repeatedly emphasise the importance of manufacturing because more non-farm jobs need to be created as you cannot have a sector which is 16-17% of the economy accounting for 45% of the jobs. A robust services sector will take up some of the slack when it comes to job creation but manufacturing needs to be step up, and this government’s work on that is absolutely praiseworthy. But you have to allow it a little bit of time.

Q. What are your expectations from the upcoming Union Budget?

We expect a growth oriented Budget. Fiscal and monetary policies have worked in consonance during the pandemic and immediately thereafter and rate hikes were needed to tame inflation. While inflation at consumer level has come within the tolerance band, but the fight is far from over and one has to keep a sharp eye on that. Attention has to be squarely on growth. We expect the Budget to take measures which attract investments and promote investments. Fortunately there is sufficient tax buoyancy to give the finance minister wriggle room to take some of these steps.