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The economy is in a sweet spot-CII
12-Jun-18   13:57 Hrs IST
Investments and demand are set to grow strongly and capacity utilization is building up. These positive sentiments were universally expressed at a meeting of the National Council (NC) of the Confederation of Indian Industry (CII).

“The economy is in a sweet spot right now as the adjustment process regarding major reforms of the past few years is largely stabilised and industry is ready for a fresh phase of investment while capacity utilization builds up,” said Mr Rakesh Bharti Mittal, President, CII. Rs 50,000 crore worth of investments have been recently announced, noted the CII release.

A CEOs opinion poll held showed that 82 percent of the CEOs expect GDP growth to be higher than 7.00 % for the year 2018-19, with 10 percent of them expecting growth to be above 7.5%.

“Industry is looking forward to GDP growth rate picking up to close to 8% over the next couple of years. Fiscal prudence, able macroeconomic management, and strong reforms process have set a sound foundation for growth,” said Mr Mittal.

82% of respondents expect capacity utilisation to increase in the coming year from the current 74%. 92% of CEOs polled expect further increase in consumption demand also during 2018-19. This implies surge in investments, going forward. In fact, as per 60% of CEOs, private investments are set to increase during the coming year.

On job creation, 56% of the CEOs polled expect jobs to increase during 2018-19 and just 18% believe that job creation will be maintained at the current levels.

On the international trade front, while CEOs expect exports to increase, imports are also expected to increase, thus leading to increase in trade deficit. 55% of respondents believe exports growth will pick up in 2018-19 over the pace of 9.9% in 2017-18. Imports are expected to grow faster than the rate of 21.2% as in 2017-18, stated 63% of the CEOs. Increase in trade deficit is thus expected by 61% of participants to go up.

“Exports registered 10% growth over 2017-18 as the global economy is recovering and we expect the momentum to pick over the current year. Going forward, we must leverage stronger overseas demand and shifting global value chains through trade facilitation and competitive products,” said the CII President.

The CII lauded the landmark policy of Fixed Term Employment which has recently been extended to all sectors. “Fixed Term Employment represents a consensus of industry, trade unions and government and is expected to change the industrial relations landscape,” said Mr Mittal.

In the manufacturing sector, the overall opinion of CII members was that demand is healthy, although input costs are rising. CEOs noted good performance across sectors such as automotives, white goods, steel, cement, and capital goods. In the ICT sector, CEOs stated that the outlook is 'good' and that manufacturing of smartphone components is set to go up, indicating upward local value-addition.

Mr Mittal said “Most manufacturing sectors are firing up now, with automotives, FMCG, electronics and chemicals leading the way. Rural demand can be expected to remain resurgent on the back of normal monsoons as forecast, while public spending on infrastructure is boosting prospects for capital goods and downstream sectors.”

Regarding the infrastructure sector, CEOs stated that there is a 'discernible pick-up' now as compared to a few years ago. 'Many sectors have 3x order books, while cement is seeing month-on-month growth of 17-23%,' observed CEOs at the meeting. It was noted that this is an outcome of strong government spending in the infrastructure sector, especially roads and highways.

In the mining sector, sustained growth is expected for the next two-three years as the government is taking action to address the mining slowdown which has arisen due to issues in the coal sector. However, with many mine leases set to expire in 2020, there is need for auctions to take place quickly, pointed out CII members.

IT CEOs said that strong demand is coming from the US and the EU, with large digitisation contracts and the sector could expand by 10%. Other services sectors too are expected to be buoyant.

Auctions in the renewable energy sector are taking place and fresh bids are coming up in solar and wind energy. As 120 gigawatts of capacity is to be built up, $120 billion worth of investments can be expected and India can emerge as a manufacturing hub, observed the CEOs from the sector.

The agriculture sector requires investments, market reforms, land lease and contract farming options, and boost to productivity. Investment in agri value chains will also yield results for farmers. Other areas that need to be pursued include food processing, agri exports, and development of Farmer Producer Organisations, as per participants at the CII NC meeting.

The CEOs felt that credit and capital availability is of concern especially for the MSME sector. Bank loans could remain 'sluggish' for the next two-three years, and recapitalization of public sector banks is an imperative, going forward. They also pointed to rising raw material and fuel costs as a key challenge.

In exports, the performance of non-oil, non-gold products reflect a lack of competitiveness which needs to be addressed urgently, according to CEOs.

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