In the run up to the union budget, the government has been engaging with different stakeholders, including industry associations like Confederation of Indian Industry (CII). In a conversation with FE’s Manu Kaushik, the president of CII Rajiv Memani discussed the industry body’s agenda for the budget, impact of the rupee depreciation, progress on the trade deals with US and EU, and the outlook on key economic indicators.
What should be the priorities of the government next year? What suggestions have you given for the upcoming union budget?
Memani: One of the highlights of this year is the amount of reforms that the government has done. We have done a comprehensive study which will call PACT. A lot of our budget recommendations are taken from the report. We also did a study of India’s imports profile. The total merchandise imports this year will be about $725 billion. About $250-300 billion would be minerals, fertilisers, rare earths, fuel, and energy, which cannot be replaced. But we can look at $300-400 billion of imports. In our analysis, we have come out with top 50 categories where we should be looking at encouraging manufacturing. In addition, we looked at high sectors such as electronics, data centres and entire energy space where there’s going to be a substantial increase in demand in India for those manufactured products. We have recommended strengthening the manufacturing in those areas as well. in India. India needs to have a concerted strategy to encourage manufacturing in these groups.
We need to have a more pronounced strategy around privatisation and disinvestment. Historically, we have had numbers which are in the range of Rs 20,000-40,000 crore. India should be looking at almost Rs 1.5-2 lakh crore of disinvestments over the next two years. Today, the market value of listed PSU stocks is Rs 45-50 lakh crore. This is a big number, and that helps in creating a sovereign wealth fund or a strategic fund for India or fund some large-scale projects like a high-speed railway projects.
On the tax side, we are not recommending reduction in tax rates. Today, we have Rs 30 lakh crore stuck up in disputes. Ninety per cent of them are CIT (Commissioner of Income Tax) appeal stage. We have made specific recommendations on how to reduce the disputes and (explore) alternate dispute resolution mechanisms.
The trade deals with EU and the US have been in the works for some time. How these deals with benefit the economy?
Memani: At a macro level, the key highlights of this year has been the way India has engaged globally on trade, especially after the US trade deal got delayed. The speed at which we have engaged with Middle Eastern countries, Australia and New Zealand, the UK, then with EU, is impressive. India has just signed the FTA with Oman, and we are starting discussions with Israel. The government has been engaging a lot with the industry to get their feedback. These trade deals have a strong commercial business orientation and once they get fully implemented, we would see significant increase in trade. Those things that are difficult to do because of political or commercial reasons, they have been kept for the second stage. They try and identify those issues which are solvable in the short term. I don’t have specific details on what’s holding back but I do know that there has been substantial progress on the EU deal, and the industry is hopeful that it will get done shortly because there is equal keenness on the side of EU.
On the US front also, our understanding is that there has been significant progress. Some parts of agriculture will be no-go areas for India, there could be some no-go areas for US as well. But we have to find ways to address other issues.
What is CII’s view on the falling rupee. It’s making exports competitive but do you see the threat of imported inflation for the economy?
Memani: As long as there’s no major volatility, a little bit weakening of the rupee will not have a bad outcome for India.
It raises the cost of imports, and therefore, encourages people to look at more domestic alternatives. In a benign energy environment today where the oil & gas prices are on the lower side, the inflation impact will be lesser than what we had anticipated.
A lot of what’s happening to the rupee has to do with the factors that are beyond India’s control. While the gross FDI has gone up significantly this year, because of the (FII) exits there was some concern. The trade numbers in November show that merchandise export is still growing at 2-3%, service exports are growing at 9-10%, and the current account deficit is well under control. So, I would say that on the rupee side, there’s no real need to worry.
The RBI is doing a good job by stepping in when they see too much volatility.
RBI governor has recently said that real interest rates need to be lower due to the benign inflation. Do you see I mean possibility of more rate cuts going forward?
Memani: The rates could come down by 0.25%, so we could see repo rate at 5% by the end of fiscal year.
In comparison to other countries, India is still a few percentage points higher, and India’s inflation rate is still amongst the lowest today.
The winter session of the parliament saw the passage of the insurance bill that allows 100% FDI in the sector. How is it going to benefit end consumers?
Memani: If the sector attracts more capital and a larger number of players, the benefit will eventually come to the end consumer. They have also tried to address some of the other issues like total agency charges that can be paid. The government has a strong focus in trying to ensure that the overall insurance coverage grows. We still don’t have the unified license. Once the unified license comes, it will further accelerate.
ADB has just revised its GDP estimates for FY26 upwards to 7.2% and RBI is also giving 7.3% estimates. What the CII’s outlook on the GDP growth this fiscal?
Memani: We started the year with estimates in the range of 6.5-6.8%. Our estimate is that given where things are today and the overall economic momentum, we should be looking at 7.3-7.5% growth.
The gross tax revenues buoyancy is likely to be moderate this fiscal which could affect the fiscal deficit situation. What’s your take on it?
Memani: The overall tax buoyancy this year is lower than last year. The real GDP growth is 8% but the nominal GDP growth, when adjusted, would probably be 8.6-8.7%. Normally India is used to a 10% nominal GDP growth. Now that nominal GDP growth’s biggest impact is in terms of computation of the tax revenues.
Also, because of the GST relief that the government gave, our view is that we may fall short of our overall tax revenue targets. On the GST side, we have to fully understand the impact of the benefits that have been passed on. The revenue expenditure is still lower than last year, and the capital expenditure growth has been strong. Overall, the gross tax revenue collections may be low but the overall fiscal deficit numbers should be met.
And your views on the private investment?
Memani: We did an analysis of 1,500 companies. From 2019 onwards till now, the average CAGR growth of gross fixed assets is about 15-16% whereas the net fixed assets growth is about 22%.
Between 2024-end to 2025-end, the growth is even more. It slowed down a bit at the beginning of this year because of the trade deal (uncertainty). But we are seeing pickup in private investments.
The number of stalled projects are coming down. The capacity utilisation rates are almost 75%. The credit growth is about 11-12% which is strong because there are a lot of other ways of financing such as IPOs and bond markets.
In the next 6-12 months, the private capex will grow at a faster rate than what we have seen in the last 3-6 months.
