RBI has a tough balancing act to do: Ficci's Harsha Vardhan Agarwal

Agarwal expresses confidence of pick up in private capex and opportunities arising out of US president-elect Donald Trump's tariff war

Harsha Vardhan Agarwal, vice-president and managing director of fast-moving consumer goods (FMCG) company Emami, took over as president of the Federation of Indian Chambers of Commerce and Industry (Ficci) last month. In a wide-ranging interview with Akshara Srivastava and Asit Ranjan Mishra, Agarwal shows confidence of a pickup in private capex and opportunities arising out of United States President-elect Donald Trump’s tariff war. Edited excerpts: 

  What are your key expectations from the upcoming Budget?

 

The government has been consistent in its approach and vision year after year from the perspective of the Budget. It should continue in this manner.

 

We have recommended capital expenditure (capex) increase 15 per cent in comparison to what it was in FY25 at Rs 11.1 trillion.

 

Apart from that, we want a greater allocation to green energy and circular economy. We have also recommended a simplified TDS (tax deducted at source) rate structure and do more for “ease of doing business”.

 

Why do you think private capex is not increasing? Is it because of increasing uncertainty that industry is not very keen to invest?

 

To say that private capex is not happening or is not increasing might not be the right thing. The Reserve Bank of India (RBI) has said it is estimating private investment to increase by more than 50 per cent in comparison to last year.

 

Covid had an impact on demand and consumption. Now, industry has coped with it and balance sheets have been deleveraged.

 

Manufacturing capacity utilisation is 74-75 per cent and that’s a sweet spot where private players start looking for investment. Hopefully that will help in increasing capex.

 

Chief Economic Advisor V Anantha Nageswaran recently said though the profit to gross domestic product (GDP) ratio of India Inc is at a 15-year high, compensation to employees is not commensurately rising, which he said can be self-destructing for India Inc. How true do you think that is?

 

The ratio might have gone up in terms of profit to wages. But that will anyway not always remain the same because companies are also adapting to technology. I don’t know whether that has been factored in — whether the ratio of wages to profits has gone down because of technology adaptation, etc. It will be difficult for me to comment on that.

 

What was the festival season like, especially after the slow second quarter?

 

The second-quarter numbers have not come up to expectations. One of the important reasons for that has been high food inflation, which has impacted expenditure on discretionary areas. On an annual basis, we hope to touch double-digit growth percentage.

 

When do you see urban consumption bouncing back? What are the factors influencing it?

 

We are hopeful it should improve in the next one or two quarters. It has been impacted by food inflation. Even the GDP growth rate in the second quarter was low.

 

Apart from that, another factor was reduction in the government’s capex because of elections in the first quarter. We are hopeful it will also go up in the coming third and fourth quarters and from there things should improve.

 

Rural has done better over the last two-three quarters. We are getting reports that kharif production has been good, which will give a boost to rural consumption and it will stay ahead of urban.

 

What do you think will be the repercussions of Donald Trump’s victory on India and industry?

 

The trend of every country focusing on supporting and protecting its industry is going to continue. My belief is that Trump coming back will not have much impact on India because tariffs might also come on many other countries like China and Mexico. There can always be some impact in some areas, but broadly I don’t see too much challenge from that. In fact, it might open up certain opportunities for Indian industry as well if there are tariffs on other countries. 

Our import dependence on China is considered a threat. Do you think that is true and has to be reduced?

 

Of course. In today’s time I think every country needs to become self-resilient. So yes, from that perspective, the more we are able to develop capacity and capabilities internally is good. Whatever interaction we have had with the government, they are also keen for the industry to develop those capabilities.

   

One of the key challenges has been high interest rates. Do you expect the Reserve Bank of India (RBI) to reduce interest rates anytime soon?

 

The RBI has a tough balancing act to do. Inflation is not good for industry. Nor for the economy as a whole. At the same time, high interest rates are not good for industry, either. I think the RBI has been doing a good job by being prudent. But we hope that once prices are a bit more in control, there will be some kind of rate cuts. 

At present the government doesn't allow FDI from China. Are you in favor of Chinese direct investments into India?

 

The government takes certain steps from the perspective of national interest. For us also the national interest is paramount than the industry’s interest.