*‘Investment cycle has started to turn’ – The Hindu BusinessLine

Clipped from: https://www.thehindubusinessline.com/todays-paper/tp-opinion/investment-cycle-has-started-to-turn/article65330396.ece

But industrialist and author Naushad Forbes says for revival, consumption cycle has to start firing

Why does India promise so much and deliver way short of that? Naushad Forbes, Co-Chairman of Forbes Marshall and former CII President, takes a deep dive into this question in his book The struggle and the promise – Restoring India’s Potential . Forbes’ narrative envelopes industry, higher education, institutions, design, culture and diversity, liberally sprinkled with RK Laxman’s cartoons.

In an interview with BusinessLine , Forbes talks about what’s holding India back and what’s the way forward. Excerpts:

So, what prompted you to write this book?

I have had this sense of potential that India has for a long time. As President of CII, I met people from industry and government, this sense of potential just got reconfirmed. We have everything that is needed to play a much bigger role in the world, and also fulfill our own aspirations as a country.

Then there was a practical opportunity. I committed to deliver this book in 2019, then a year later the pandemic hit us. Since I was not travelling I thought this was a great opportunity to write. So, there was a very lofty reason as well as a practical one that came together to make this book happen.

After the boom years of 2003-2011, growth started declining, and then we had the pandemic blow. So, in the present scenario how can growth be revived?

The economy started declining after 2012 and after 2017 the decline was more rapid. The slowdown was led mainly by falling investment largely due to the political uncertainty between 2012 and 2014. Then we had the shock of demonetisation. The second factor was exports fell after 2012. But more recently the issues have been with consumption. Consumption, which was sustaining growth during the investment slump has now taken a hit and the pandemic made it much worse. So, as informal employment revives, in particular retail and travel and tourism, both huge employers, and people return to their jobs in the cities, that would help revive consumption.

So consumption will have to start firing first, which will help drive the investment cycle. And, hopefully, we can expect a strategy to boost exports. So these three engines can revive growth.

Do you see private investments perking up anytime soon?

If you look at project investments, in 2020-21 due to the pandemic and lockdowns, they almost came to halt. But we saw things bouncing back in 2021-22. We saw growth over 2020-21 and also 2019-20. But how much of this will be sustained? As of today things are looking pretty good. The investment cycle has started to turn. Now what’s driving it, is the big question. It is not consumption as it is still stuck where it was three years ago.

Is it the PLI scheme? That is true only for certain product ranges so that doesn’t tell the whole story. But we do see investments coming back; what’s driving them, we don’t know yet, but I hope that sustains.

The PLI scheme will only benefit select sectors, so do we need a more overarching theme there?

The PLI schemes are expected to keep the supply chains moving and that’s a good objective. Where I worry about the PLI scheme is that it is also accompanied by protectionism. Now if these tariffs and the PLI come with a specific schedule or sunset clause then the PLI scheme will deepen the supply chains. We want that not because we only want to make more in India, we want to make more in India and be competitive.

Why is the share of manufacturing in the GDP still stuck at around 16 per cent despite both the UPA and the Modi governments’ efforts to nudge it to 25 per cent?

Since the 1991 reforms the manufacturing sector did well as it grew at the same rate as the GDP. But, despite governments’ efforts (both past and present) the share in GDP is stuck at around 15 per cent because Indian industry has always been more skill and capital intensive. Compared to our peers, we seem to be getting a higher value added from sectors such as chemicals, auto components. And, a smaller share from more labour intensive sectors such as garments, footwear and food processing.

So in this context the only way you can have a more vibrant manufacturing sector is by investing more in technology.

So manufacturing’s share is stubbornly stuck at 15-16 per cent because of our lower in-house R&D investments. I have an entire chapter on that in my book. We need to scale our R&D investments to a scale of five. Even our top 10 IT services companies invest just one per cent of sales in R&D. So if we don’t acknowledge the problem how are we going to fix it?

You have a chapter on design. Do you see corporates accepting design as being integral to their businesses?

In my own company I realised design is something that is important for us as a technical engineering company.

Bajaj Auto and Royal Enfield compete on design so do Tata Motors and M&M in the SUV market. If you look at their ads, you’ll see that they are basically selling on design. There is direct appeal to the emotions.

I think we need that in every field. My guess is that there are around 100 Indian companies that take design seriously, but the number should be in thousands.

You have liberally used RK Laxman’s cartoons in your book, which enriches the narrative. How did you hit upon this idea?

I took a course on financial accounting, when I was an undergraduate. The Professor said that the only way he could rouse the interest of his students in this boring subject was by putting cartoons on the handouts. I thought that was a brilliant idea. So when I started teaching I started putting cartoons in my handouts and I always used Laxman’s cartoons.

Then I started using Laxman’s cartoons for my talks on the Indian economy as they portray what we are in a really precise and accurate way.

This distrust between industry and government which was so pervasive in the 1970s and 80s, was something Laxman caught perfectly. We unfortunately see that distrust returning today. Cartoons can really make a point come alive. So humour helps, especially when you are talking about very sensitive issues.

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