‘The RBI has done its job… availability of capital not an issue for industry’

The new set of FTAs that India is signing (is with) countries India has a fairly complementary relationship with. If you are signing an FTA with a country that, hypothetically, had very strong labour-intensive manufacturing or had cost structures which are similar to India, I think you would have had a greater challenge. Here, by and large, with UK – and if India signs with US and EU – there is a lot of complementarity in the relationship.

As long as the FTA rates that India enjoys are competitive or better than the FTA of countries that it will be competing with to access that market, I think Indian companies are happy. So, the general view is that given the size of the Indian market, the quality of relationships that India enjoys, and the size and stature, we will get competitive or better deals. Otherwise, we are not going to sign the FTAs. That’s the general sense.

You could also be on the receiving end. Yes, there are some sectors – I don’t think there will be a lot of sectors, especially if you are talking of UK and US – where there will be stress in terms of manufacturing. But there could definitely be some sectors – because your customs duty may come down from anywhere between 5-10 per cent, 15-20 per cent depending on the product and category.

Till now, what companies are looking at is internal ways in which you can become more competitive. And secondly, to look at how the various factors of production can be reduced so that the competitiveness is there. Third – and the government’s recent (Research Development and Innovation) scheme would also be helpful here – is how do you proactively invest in R&D (research and development) to become more competitive.

Everyone cannot be happy. When two countries are negotiating…there will be some people who will feel slightly challenged. But, by and large, I would think that will be a smaller market segment compared to the overall.

So far it seems that the best we can hope for with the US is a tariff differential vis-a-vis China.

It should be better than China. China has higher (tariffs). But hopefully better than Vietnam and the others.

I have no idea when it (FTA with US) will be signed. But given the amount of effort that is being put into this, it will be signed sooner rather than later.

You have said that you see the Indian economy’s GDP growth rate in the range of 6.4-6.7 per cent for 2025-26. Considering you said capital is not a problem, does the RBI need to do more?

No. I think the RBI has done its job. We must compliment the RBI for being very proactive in doing this. We have one of the most benign inflation (conditions), low interest rates, Cash Reserve Ratio (cuts), liquidity in the system. If you talk to all the financial participants in the market, there is a lot of simplification that is happening on the ground; (for) a lot of the earlier issues and circulars, there are questions that are being asked ‘What is the relevance, why (do we need it)?’ So, I think the RBI has truly done a phenomenal job.

What about private investment? Companies are sitting on a lot of cash amid a weak urban demand outlook, global uncertainty, and capacity utilisation near 75 per cent for a prolonged period of time.

My personal view is that most companies want to grow: capital markets are rewarding growth, balance sheets are – in general – in a good state for most companies, availability of capital is not an issue, and the outlook on India is generally very positive – you can argue whether it’s 6 per cent, 7 per cent, or 8 per cent, but generally, it is positive.

Earlier, a year-and-a-half back, rural consumption was a challenge and now urban consumption is a challenge; rural seems to be doing better now. Those issues will be there. But I still think that the posture of most of the companies in India and most of the members of CII that we talk to is generally positive and looking to invest. If you look at sectors and companies, if you read their balance sheets, their Annual General Meetings, the announcements they have made, they are pretty bold. Yes, these are the larger companies, but they have a trickle-down effect.

If you look at the top-5, top-10 groups in India, the announcements that they have made are pretty significant in terms of investments. Now, some of them could be off by a quarter or two given what’s happening globally. But I think there is more noise around the fact that the private sector is not investing. I think they are. Should they be investing more? The answer is probably yes. But the amount of investment that the private sector is doing, in the last 3-4 years, is gradually increasing.

Yes, with what’s happening in geopolitics and world trade today, people are just waiting and watching a bit to see what happens. So, if they wanted to invest X, they will probably invest 0.7-0.8X for the next 3-6 months and see how the FTAs, war, geopolitics settle and then take a call on investment because keeping cash on the balance sheet, the return that you get is nothing.

Is it just the global uncertainty that’s holding back private investment?

No. Obviously, demand growth in some pockets is slower than what people anticipated, urban demand in particular and what’s happening globally. The pace at which it (private investment) can happen is not there because of reforms, ease of doing business, or because of (lack of) availability of skilled manpower. I think that has reduced the speed at which things can get done.

Also, technologies are changing and it takes time for people to decide. If I want to put a steel plant, should I do an electric arc furnace or a blast furnace? The whole world was in favour of sustainability, so I would have done electric arc. But now, sustainability has gone back. Should I do DRI (Direct Reduced Iron), should I use scrap, should I not use scrap? Will I be able to buy scrap from Russia? Tomorrow, if Russia is closed down, then what happens? Earlier, these things didn’t come in the decision matrix… The question sets have become more complex.

China has a tight grip on rare earths and other sectors, such as solar manufacturing and wafer equipment. There are concerns about the supply chain possibly being blocked. Government-to-government (G2G) engagement is seen by some as the only solution. Do you think the Indian government is doing enough?

The issue of India-China relationship is very complex. On matters that relate to security, industry and industry bodies like CII would really advocate what the government is saying because there are layers within layers within layers. So, my view is that the government has a certain stand. Industry can definitely represent to the government and has been representing to the government the challenge, at least on rare earths. And it’s a very significant challenge, probably understated till now because we may feel that it can get sorted out. But whether the government is doing enough or if it’s a G2G issue, the government will have many considerations. We should also look at alternate geographies and maybe some longer-term solutions as well.

We are seeing companies increase the extent to which they are utilising AI, which is leading to either job cuts or fewer hirings. Is there a balance to be struck or it’s something which will just have to be found out?

We will have to find out as we go. But the Indian industry, by and large – more so in the services sector than manufacturing – is starting to adopt AI. I am pretty sure that India would be amongst the leading countries to adopt AI and invest in technology. But it’s too early to say the benefits have started translating. It will take time.

In some industries and sectors, I think jobs will start getting impacted. But at the same time, (we will have) competitiveness, efficiency, better labour productivity, and India becoming a global use-case centre – where through GCCs (Global Capability Centres) and others we do some bleeding edge work. Most of the countries who are looking at deploying AI at scale would want to leverage India not only on the innovation side but deployment side as well.

So, AI is definitely something India should watch out for in terms of developing our own intellectual property, which through large LLMs (Large Language Models) and others we are trying to do. Second: implementing AI across our companies. Third is skilling our people and skilling at scale. Fourth is ensuring that legislation supports AI in a significant way. And fifth is how India becomes one of the leaders and global use-case capitals of AI.

Even though there has been a lot of government support for the manufacturing sector, GCCs on the services side have really taken off. Is the government’s focus somewhat skewed? Would focussing on something like tourism create a lot more jobs than, say, a Micron plant?

The reason (for the government’s manufacturing focus) is that manufacturing as a percentage of GDP and what it employs is much lesser. So, India has to give greater impetus towards that.

Secondly, services per se – most services, not all – don’t require that much investment from the government; as long as you have good infrastructure – airports, good roads, power availability – that’s fine. And India has an inherent competitive advantage in services and competitive disadvantage (in manufacturing) especially because the comparison point in terms of cost globally is one country and India is less competitive compared to that country. So, you would normally assume that manufacturing companies need more support.

Going forward, if India has to achieve their goals that they have set for 2047, then manufacturing has to take off. So, I think the focus of the government on manufacturing is right. Services will have a natural buoyancy for growth.

In areas like tourism that you mentioned – which are outside of IT services, technology, BPO – there the government should be doing much more. (Tourism generates) a lot of foreign exchange, localised jobs, and it’s profitable. So, the economic advantages of tourism are a lot and India has a lot to offer. But are we getting the full bang for the buck? I am not sure.