The ongoing tensions between India and Pakistan might lead to short-term caution among foreign investors, but industry is committed to ensuring the continued progress of economic activity, says Confederation of Indian Industry (CII) president Sanjiv Puri. In an interview with Mukesh Jagota, Puri, who is also the MD of conglomerate ITC, spoke about tariff wars, free trade agreements, corporate investment activity, consumption demand and other growth drivers. Excerpts:
How do you see India-Pak tensions impacting economy and trade?
The CII welcomes the announcement of the ceasefire between India and Pakistan and commends the government for its impactful yet measured diplomatic and security response to recent hostilities. It is too early (to comment on the impact), but I would say that the Indian economy is far more resilient and will be able to sustain its performance. Regardless of any challenges that may arise, the economy will rebound. Industry remains firmly committed to ensuring that economic activity progresses.
Is there a prospect of a further slowdown in foreign investment?
Some short-term caution may emerge, but it does not alter the long-term outlook. Ultimately, investment decisions will be driven by the fundamentals of the Indian economy, the opportunity in the Indian market and its growing role as a global source, bolstered by recent economic reforms and trade agreements, which continue to strengthen these opportunities.
How does the industry view the ongoing global tariff measures and the challenges they pose?
There is some uncertainty in the short term. As far as India is concerned, it is well placed. The government must be commended in the manner it has been pursuing the bilateral trade agreements and what has already been delivered in terms of the Free Trade Agreement (FTA) with the UK. There are many other pacts that India is pursuing, especially with the US and the European Union (EU). They are large economies and they open up a lot of opportunities across all sectors — agriculture, manufacturing and services. This presents an opportunity not only for enhancing bilateral trade, but also for establishing new value chains, promoting supply chain diversification, and strengthening supply chain resilience in the medium term.
Can India seize the opportunity presented by the potential realignment of world trade?
The FTAs that India is pursuing will open up opportunities for our labour-intensive sectors. Over the past few years, substantial progress has been made in areas such as electronics, semiconductors, and defence.
The next key opportunity lies in enhancing value addition within the economy by developing an ecosystem that boosts overall efficiency. In this context, FTAs become an important enabler.
Which sectors are most optimistic about the FTAs, and where is there evident interest to leverage the advantage?
Apparel, toys and footwear are the sectors where MSMEs will gain by integrating into the global value chain. Additionally, auto components and chemicals are also key areas of potential growth. There will be many sectors where we will gain. There are enough people who would be interested. Besides, there are startups poised to invest and capitalise on the emerging opportunities.
Will India have an advantage vis-a-vis China in international trade in view of the tariff differential which might be there after all the trade deals are done?
When the bilateral trade agreements are fully done, India will be in a competitively better position vis-a-vis China and other countries. At least, we will be on equal footing.
What should be the other focus areas for industry and the government?
I think we will have to continue to focus on domestic drivers of growth. Compared to the past, there is now a stronger alignment towards investment and industry, even at the state level. The reforms, ease of doing business, steps taken on the national mission on manufacturing and smart industrial cities create a compelling and competitive ecosystem.
What will be the domestic drivers of growth in the short and medium terms?
In the short term, several factors are contributing to positive outcomes, including easing interest rates, benign inflation, improved monsoons leading to higher farm income, and the cumulative impact of public and private investments made in the second half of last year. In the medium term and beyond, we can expect to see trade agreements coming in, labour-intensive sectors progressing, leading to creation of more jobs and giving boost to demand.
What is the outlook on private capital investment that has been lagging for past many years?
It should be more, and there is no doubt about it. But it has picked up of late. If you look at the CMIE database, announcements are quite high which shows higher opportunity and intent. We should see that (private investment) improving going forward. Even the CII’s surveys show higher capacity utilisation of 75% and above. Intent is there but some of the geo-politics and geo-economics may be causing some caution (in implementation).