Monetary prudence, ease of doing business can cushion oil shock, interest rate rise: CII President

Confederation of Indian Industry (CII) President R Mukundan has said the key measures to shield Indian industry from high crude prices, technological shifts and interest rate risks include diversifying trade partners, improving the ease of doing business, optimizing export frameworks and maintaining monetary and fiscal prudence.

“We have not given up on what I call monetary and fiscal prudence (amid the West Asia crisis). This has helped us cushion the shock in many ways. I think it could have been a much bigger shock had we not done so,” said Mukundan, who is also the MD and CEO of Tata Chemicals, in a conversation with Akash Mandal and George Mathew. Excerpts:

What is your assessment of the whole economic situation, with inflation slowly climbing but Q1 also seeing strong growth?

I think we live currently in an environment of constant surprise or shock. Where it is going to come from depends from time to time, and I think given the challenging environment that we continue to face and will continue to face as a new norm in some ways, our performance has been fairly good in terms of the way we have managed the situation. Maybe there have been intermittent crises, but then they get addressed, and we move on. But broadly, I think we have addressed them, and at the same time we have not given up on what I call monetary and fiscal prudence.

This has helped us to cushion the whole thing in many ways. I think it could have been a bigger shock had we not done so. But you’re right, inflation is rising, and the energy shock is going to continue because crude oil has crossed $100 a barrel.

Crude oil prices are above $100/barrel now. If that persists, do you see it creating more problems in the coming months or quarters?

I think the only thing we can do in this whole environment is to diversify both our access to resources as well as markets. We need to have as much diversity as possible. Dependency on one large area is always going to be a big issue and a great problem for us. Which effectively means we need lots of friends, and we have to be friendly and open with as many people as possible.

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The second thing is about how we make ourselves internally strong. The internal strength comes from what I would call predictable, visible policy. Even where there is a transition, there should a visible path. The second piece of the puzzle is to ensure that wherever there is a gap in both risk and reward, there should be a public-private partnership to make sure that gap is filled. It is all about minimising the risk. We also need to focus on developing talent, skills, infrastructure and logistics.

With inflation now rising, do you see interest rates rising in the near term? And would that add to risks for industrial growth?

It would be okay as long as the RBI moves within the policy framework they have already laid out. See, one is the consumption area, where interest rates may have an impact, like slowing down consumption or people spreading out their EMIs or whatever they can do. But from the industry perspective, I think there are some steps we need to take. While interest rates do play a role, these steps are more important.

One is ease of doing business. If ease of doing business is accelerated, I think industry can absorb some of this because it reduces the cost of doing business. More importantly, I think when you look at capital-intensive investments, the speed of doing business plays a bigger role. If I can compress my execution time from 48 months to 36 months, that 12 months saved is actually a big benefit, much more than what interest rates can do. The way to think about it is to see if other productivity and efficiency levers are available, which we can work with parallelly while monetary policy does its job.

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What are some steps that can be taken to improve this ease of doing business?

The benefit we have is that we have already digitised most of the information we have needed. While that has enhanced this ease of doing business sometimes, many times it has not, as it just meant that you are digitised in different pockets, and they are not talking to each other.

If I have a company number, let us say the tax code, the same can also be used for provident funds. Same can be used for the whole issue of insurance, duties, and customs. So how do we make the data common across the board? One number, one data can give me a 360-degree view of the entity and enterprise, and that is what I think the government is working towards. The second thing is that we need to make things easier for businesses that are at an early stage and think about how to make sure the investment can take shape faster. It can start with access to land. Second is that land can be allotted to people digitally. So we need to reduce the number of steps from the time a business has an intent to the time when it is actually productive. That is what ease is all about.

 India has signed a lot of trade agreements in recent times. How do you view these agreements, and do you see any risks?

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At least the more recent ones that have been done have all been with complementary countries. When I say complementary countries, the more recent ones have been done with those who cannot just be a source of technology but also a great market for us. And these are open markets. For example, there are some deals which we have signed with our immediate neighbouring countries to the east. They are actually our competition in many ways. But what we are signing now is firstly very complementary with respect to access to technology and markets.

Secondly, I think there is a greater work to be done by industry associations and the industry in terms of engaging on what I call free trade utilisation. Are all the tariff lines utilised? For example, South Korea I think broadly uses 60-70% of their tariff lines. We are able to make use of only about 40%. Can we increase the number of tariff lines, which means the breadth of products and services we deliver? The second piece is about where we don’t have the breadth, can we get the technology to come here to invest and build?

What are the challenges that our exporters and manufacturers face, leading to a low utilisation of these tariff lines?

So there are three broad things. The lowest level is what I call the facilitation layer, where we put the buyer and seller together in the same room, or person who can give the service to person who can take the service in the same room. This layer could be the easiest win for us.

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The topmost layer is the policy framework to make access better. For example, if Indian exports face unfair competition because of certain sustainability rules, certain carbon rules or whatever, how do we address that with that specific tariff area and engage with the industry and give a transition pathway for our industry because we finally will have to get to those standards. The middle level is where we normally engage with respect to things like tech partnerships or talent training partnerships.

The BRICS Summit happened last week. Has it helped India, and what benefit have we got out of it?

In some ways we can say that if you look at our engagement with China, or our engagement with the original members of the BRICS, certainly there has been a bit more vibrancy than what there was before. That will filter down into vibrancy in business.

We had four tracks of work for which we had submitted our recommendations across all countries. It started from agri, down to technology, and high-tech areas. And the broad objective, I would say, is to convert intent into outcomes. There are many complementarities between the countries. For example, if you look at South American members part of BRICS, they have all the critical minerals. We need the critical minerals. They need our investment. We need to manufacture here. So there is a complementarity sector by sector when you look at it. And we have mapped that out.

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How do you view the demand environment in the economy? What are your thoughts on private investments?

On private capex, it rose from 49% last year to about 69-70% this year, with 16% growth and 20% compounded annual growth. And it is also more broad-based now. On demand environment, you have to look at every sector. So if you say that demand for discretionary consumption could get affected, but what I would call the base consumption is not going to be affected, I think that is a certainty in many ways.

If you say interest rates rise and people postpone some purchases, it will affect some segments of the market. But overall, when you look at India’s growth rate, at the highest end, it probably is going to be 8.5% or close to 9%. At the low end, it is going to be 7%. We probably will be toggling some between these two depending on quarter to quarter. But that seems to be the case for us.

The only issue which we are facing currently, which is an issue which I think we all need to work towards for the long term, is the energy security question. In case of non-mobility solutions, the government has laid out a very good programme in terms of electric power generation, distribution, renewable power, and nuclear power. For mobility, I think we need a multiplicity of solutions. We need EVs, we need blending, we need CNG, we also need liquid fuel, all of them. And I think it is a combination we need to work out.