Private-sector capital expenditure has not been up to the expectations, despite robust corporate profits. Companies are now in a “sweet spot” and will expand capacity to meet demand, Federation of Indian Chambers of Commerce & Industry President and Emami managing director Harsha Vardhan Agarwal told Raghav Aggarwal and Prasanta Sahu. Amid concerns of low growth in salaries and wages, he said adequate compensation for talent is of “utmost importance” for companies looking for growth and innovation. Excerpts:
Corporate profitability has multiplied in recent years, but it’s not adequately reflected in compensation increases for the staff. How do you see it from an industry perspective as it may impact consumption?
In today’s free economy, good and talented manpower is one of the biggest assets that a company can have. In a competitive world, if they don’t increase salaries as per the market rates or as per what is expected, (talent) will go to other companies immediately.
What more can the government do to ensure that companies invest more in manufacturing?
According to a recent RBI report, private investment is estimated to go up by over 50% this fiscal year. So, it’s not that private capex is not increasing. Demand was badly impacted by Covid, and it hit companies. Things have gradually come to normal. Companies have been able to de-leverage their balance sheet.
According to our assessment, manufacturing capacity utilization is now somewhere around 74-75% and that’s a very sweet spot for the industry. So now, we are at a point where the industry can start looking upward, and hence we believe from here on, more capex will come.
Now the question is whether the (capex growth) is up to the expectations. It may not be. But from here it would improve, and there is no doubt about that.
Is the industry ready to scale up capex if the government moderates capex going forward?
The balance sheets have become deleveraged for many industries. That gives the confidence to invest. Our recommendation is that the government capex, which was pegged at Rs 11.11 lakh crore for FY25, can be increased by 15% in FY26.
There is a slowdown in urban demand, especially among the middle-class segment. Do you see this trend to continue?
Consumption from the lower middle and middle class perspective, has been low. Around 75% of the retail spending on average is towards food and grocery. The rest 25% goes towards discretionary spending. Food inflation has been high, and hence this challenge is there. But going forward, we believe that food inflation would come down and it will certainly help the overall consumption level.
What else can be done to aid consumption?
Capex will bring in more employment, which will help in bringing more money into the hands of the consumers. Rural areas have been doing better than the urban. The Kharif output also seems to be very good, so rural income will be at a higher level, which will also give a push to consumption.
Are high cost input costs still an issue?
For some specific sectors, it might be more of a concern. But broadly, and in FMCG, if I talk about our company (Emami), we don’t see much of a challenge from the cost perspective.
Some companies announced price hikes from next year. Do you see that happening across the industry?
I think it will depend on sector to sector. The consumption is also low and on top of that, if they increase prices then it is certainly going to have a larger impact on the sales.
What about the price increase in the FMCG sector?
In FMCG, even for our company Emami, I would say we are not looking across segments that we have to increase the prices because of the input cost or something like that. We are not facing any such challenge. It will be dependent on the need basis.