The trend of manufacturing companies outsourcing services has impacted wage growth in India, Sanjiv Puri, president of Confederation of Indian Industry (CII) said in an interview with Priyansh Verma and Raghav Aggarwal. Companies becoming more efficient too has impacted headcount and wages. Puri also said that consumption in India is “under stress” right now, but could improve in the next two quarters.
What should the Budget do to boost consumption in the economy?
We’ve a strong economic foundation. There are certain measures that will have an impact in the near term, and some, which will provide impetus to consumption over a longer period of time. I think the Budget should announce some cuts in personal income tax rates for individuals earning up to Rs 20 lakh per annum, reduce excise duty (cess) on petroleum products, and increase wages under MGNREGA to stimulate consumption in the near term. Also, we don’t expect the government to go for any tighter fiscal consolidation than 4.5% of GDP in FY26. Else, growth will be impacted.
Additionally, public capex should be increased by 25% in FY26 over the Rs 11.11 lakh crore Budget estimate for FY25. Monetary policy should be eased, as lower interest rates typically support growth. In FY26, CII expects GDP growth to be around 7%. We need to take many steps to take our growth rate to 8-8.5%.
The first advance estimates show private consumption growing at 7.3% in 2024-25 as against 4% last fiscal. Does this signal the widely reported urban demand slowdown is overstated?
Without getting into agreeing or disagreeing with the data that has come out, I would say that the feedback from the industry is that right now the consumption is under stress. We can see that in the corporate results too. But the industry is hopeful that consumption will improve progressively in the next couple of quarters. Better crop output, increase in public capex, and reduction in policy rates are among the factors that would help bolster consumption. Targeted consumption-centric measures would also help.
The finance ministry has recently said that monetary policy had played a role in curbing demand…
Yes. The sticky part is the food inflation, which is not linked to monetary policy. CII thinks that the inflation targeting framework should exclude food inflation. Moreover, the Reserve Bank of India (RBI) should cut the repo rate by 50 basis points in February.
The ministry has also criticised low wage growth in the corporate sector, which consequently is restricting consumption growth…
We’ve taken feedback from CII member companies on this. I must tell you, wages are getting revised. For some sectors, largely services, the wage revision data is available in the public domain, but for factory workers, it’s not.
Wages are not linked to profits. It’s not as if when profits are up, wages are hiked, and when profits are down, wages are cut. Wages don’t follow that pattern. But in the longer term, both should align.
Also, we should look at the changes that are taking place. First, what is called ‘servicification of manufacturing’ is a real change for example. There are many activities the manufacturers used to do on their own earlier. Now, as companies are getting competitive, there are specialised agencies that are doing some of those activities, OEMs are providing services. Secondly, the industry has become efficient, which is needed to be competitive. This has, however, reduced headcounts and affected wages. Wage growth will happen, but had these two factors not been there, the growth would have been much higher.
Which sectors should be in focus for India in 2025-26?
Supply chain diversification and supply chain resilience are a strong trend. Energy transition, digital transformation, demographic challenge, and food and nutrition security, are global trends. In India, tourism is an important trend because people have taken to tourism unlike the past.
So, besides the sectors that we are already focusing on, and which are already growing, like electronics etc, the focus has to be on labour-intensive sectors like footwear, garments, furniture, tourism, and real estate.
Why do you think have the disinvestment targets remained largely elusive?
It is a difficult process because there are multiple stakeholders. That’s where the challenge comes in. And maybe, there is a need to look at a specific cell within the government that focuses on it. So, we recommend one special cell within the government to look at it and coordinate between the line ministry and DIPAM. It has to be an integrated responsibility, not just of the Finance or the line ministry.
The new private capex cycle doesn’t seem to be robust and enduring…
In 2022-23, investment as a percentage of GDP was 30.7 (current prices). After that, private capex has revived. There was a transitory phase where it was a little bit subdued but it has picked up now.
If you look at equipment manufacturers in capital goods sectors, their order books are good. Internal surveys of CII also suggest that 35% companies have said they will have higher investment this year. Another 45% said it would increase next year. So, investment is happening. Even if we look at this year, despite transitory factors the percentage (investment to GDP ratio) is 30.1%. So, directionally it is moving in right direction.
So, if consumption improves, then we can see higher investments?
Yes, investment is always related to consumption. Now, the overseas situation is weak and China has been dumping the stocks into many countries, that clearly is a headwind. And domestic consumption at the current rate will lead to investment of a certain magnitude. So, we need to step that (consumption) up.
How do you see Donald Trump’s tariff plans with respect to India?
At a broader level, this whole thing about supply chain resilience and supply chain diversification is a positive for India. It’s an opportunity we should focus on.