You were so buoyant about the economy, optimism. What is the reason for that?
Let us just step back and look at why and how Indian GDP grew at 8.2% last year. And this has grown at a time when the world has been under a relative amount of stress. So, we have managed to grow at 8.2 because of a lot of interventions that have happened in the past. A slew of policy instruments have been put in place that have improved the health of the economy and a lot of purposeful interventions to drive certain facets of the economy, that has created the momentum. So, we are on a solid foundation because of certain initiatives that have taken place. It is not that it just happened like that. So, there is a reason for which and it sets the economy on a solid foundation.
Now, going forward, we do expect that the reform momentum will continue because the model that has been followed earlier of investment for inclusive growth to create a virtuous cycle and the process of reform, unlocking the productive capacity of the economy has worked well and it should energise greater impetus on reform going forward. Now, CII has believed that we should potentially be seeing another 8% in the year ahead. And the reason for that is that on one hand, the monsoons are expected to be better that is the forecast. So, agriculture should perform significantly better and that would also help in moderating the food inflation, which is a sticky issue at the moment.
Core CPI is already at 3% or so. And therefore, we see inflation is about 4.5%, that will provide a boost to the economy and consumption and that in turn, I believe will also hopefully lead to interest rates easing in the second half of the year.
On the external front also the forecast indicate that the global trade, which is in a minus territory this year, minus 1.2, will be some 2% plus this year.
So, there is going to be some improvement there also. So, that also should provide some impetus to the economy. And so, overall, I think these are the near-term reasons because of which we are saying 8%, besides the fact that the reform momentum will continue.
And the budget is around one month away now. Quarantine is going to be placed very soon or is already in place. So, everybody is now clearly focused on budget. What is your expectation? Big Bang reforms this time, you think, will be announced in budget?
We believe, as I said earlier, that the reform momentum should carry forward, in fact, even get better. And from a larger reform agenda and also the Budget what we are looking for is really the big ticket and difficult reforms which fall at the intersection of centre and state to be looked at – labour, land, power, agriculture, fiscal sustainability because these are important to unlock the true potential of the economy, to bring in competitiveness and unlock the potential of each sector.
We believe that this investment on a public capex is increasing the productive capacity of the economy besides on its own creating jobs and enabling the start of a virtuous cycle of consumption and investment, that should continue.
We are suggesting a 25% increase. And what we are also suggesting is that within that there could be greater focus at the rural areas. We need to also look at certain sectors that are labour intensive and provide some impetus to that and all of these of course are areas where both industry has to work with enablers from the government.
So, in those sectors, just like the PLI has worked well for certain sectors, what CII is suggesting is an employment linked incentive with some outcome measures to provide impetus to these kind of sectors, apparel, toys, tourism, furniture, other wood based, media, retail and amongst others so that is the other area we are recommending.
Then, we are also suggesting that the investments in health, education and skilling could be strengthened.
In fact, for education, can there be a road map to get to a 6% of GDP and healthcare 3% of GDP and set a target of formalised skilling of at least about 25% by 2030?
The available data seems to suggest right now it is 5%. In many economies it is much higher and for India’s growth and for us to really leverage our demographic dividend, I think this is an imperative.
In addition to that, I think the green transition is very important for the economy. It is also a commitment, in some ways it is also getting to be a competitive issue as far as trade is concerned, so that journey needs to continue and been accelerated.
The resources for that requirement are tremendous. So, how can that green fund be created? It will be through of course a combination of public, private, external, internal sources, so that is the facet that needs to be looked at.
From a specifically rural perspective, agriculture is important for rural.
So, agriculture productivity as also agriculture resilience, these are important areas.
There are policy instruments already in place. So, it is about scaling them and bringing in some newer measures like crop intelligence grid for planning and converting these farmer collectives into larger clusters with appropriate ecosystem and maybe time is also right now to look at some kind of a rural development hubs around cluster of villages where the social infrastructure, for example, could be made available for education, skilling, healthcare, entrepreneurship development.
And given that physical connectivity is good, people could travel, take these services and come back in a hub and spoke kind of model. It could also be a phygital kind of model, both digital and physical. So, these are some of the areas that we believe that investments will make the economy on an even stronger foundation going forward.
Next week, GST Council meeting is happening. I am sure industry has a lot of demands. Can you tell us about some demands, some expectations, and also pre-budget meetings happening also very soon?
As far as GST is concerned, we are suggesting that we go for a three-tier structure, include the pieces that are not in GST currently within GST, things like petroleum, real estate and other areas that are outside the remit of GST should all come within GST. And as far as, simplifying processes are concerned, I think that is an ongoing activity, time to time there are suggestions and government has been very receptive and open to receiving suggestions and that journey will continue. You see, GST is a large transformation, and we have achieved a lot. But sure, there are areas where some things can be better and there are suggestions that happen on an ongoing basis and government also has been very proactive in looking at that.
You also had a company that has a lot to do with rural demand and all. I would like to generally understand about rural demand. What is the status of rural demand? Are there real demand there? What is your estimate this season because monsoon is going to be normal as well?
If you look at the commentary from most companies, it is saying that there are green shoots of pickup. We believe that with better monsoon, the crop is going to be better, that will also kind of help in pickup of demand.
And because of that, we also see that food inflation will be more modest, that also should help in improving that situation, plus the impact of all the reforms and the investments that are happening, that will also have its share in providing some impetus.
In your 14-point agenda, you have asked that centres should invest more, capex should be increasing from government side. Can you elaborate more? Also, what about the private investment?
Public capex, as I said, increases the competitiveness of the economy, it reduces the logistics costs. However, there is more that can be done in this journey, particularly at the rural end. And because it has got a multiplier effect on the economy, that is why we are recommending that that continues to do. Now, private capex is also very much in the right trajectory. Figures for 22-23 indicate it is 23.8% of gross fixed capital formation.
We do not have the figures for the last year and this is higher than the pre-COVID level. So, it is very much on the right track. And again, I would go back to say that I think the right policy enablers are in place and the cumulative impact of that is what we are seeing.