Budget must focus on lowering fiscal deficit: EY India's Rajiv Memani

In an interview with Ruchika Chitravanshi, Rajiv Memani, Chairman and Managing Partner of EY India, said that there is a strong enabling environment for private sector investment

The upcoming Budget should keep the fiscal deficit under control, maintain stability in tax rates and the finance minister must address softer issues such as ease of doing business, Rajiv Memani, chairman and managing partner of EY India, said.

In an interview with Ruchika Chitravanshi, Memani said that there is a strong enabling environment for private sector investment. He also said that if India takes advantage of the China Plus One strategy, it could be the golden moment for its manufacturing sector. Excerpts: 

How do you see the impending recession in the developed world impacting the Indian economy? And, what do you think we can expect from the Budget this year?

The capital flows that will come into India may be a bit more choppier, whether it is private equity, venture capital, or capital markets, or companies looking at doing QIPs (qualified institutional placements) and IPOs (initial public offerings). Also, global strategists will look at capital allocation more carefully before they venture into anything. Second, India still has almost 21 per cent of its GDP (gross domestic product) coming from exports and a lot of these are from developed markets. The impact of demand will be there. This may be lesser in IT services than what people anticipate because companies will still be doing digital transformation. In other commodity and merchandise exports, this will probably be felt more. 

India is still the brighter spot of the global economy…

The momentum is there. If the government can spend the money it saves from lower global commodity prices, and utilise it in the domestic economy rather than exporting it out, then there is greater value addition that happens in India. The Indian economy should grow more than 6 per cent. 

Do you see rising interest rates slowing down domestic consumption further?

Private final consumption expenditure is an important denominator for India. Almost 60 per cent of GDP comes through consumption — so it does have an impact. We are not out of the woods from an inflation standpoint, but definitely, it’s not out of control. The real challenge has been in the rural economy and the lower-income areas. There is definitely a demand stress. If the economy stays buoyant and employment opportunities get created, then India is used to this kind of interest rate.

What more measures and reforms could the government take to encourage private investment?

One is to make private consumption or private expenditure, capital expenditure. Capacity utilisation in India is inching up. Domestic demand seems to be picking up. The larger Indian groups are now investing significantly. A lot of those investments are in the areas of new energy and infrastructure. You do see massive announcements from some of the larger industrial houses. Third, the Centre’s balance sheet is in reasonable shape. We still have over a 6 per cent fiscal deficit, but gradually it’s falling. The balance sheets of banks and financial institutions are very strong and so are the balance sheets of the private sector. Fourth, the corporate tax rates have been the lowest ever and they have been stable for some time. The production-linked investment (PLI) scheme seems to be working. The enabling environment around private capital investment coming in is very strong. The data still does not support it. But I think, in the next 6-12 months, the data will also hopefully start showing a pick-up on the private capital investment side. The issues around enforcement of contracts and ease of doing business are the bigger challenges. From a Budget standpoint, if the FM has to focus on one thing, a lot of it has to be on the softer side. 

What is a good Budget for you?

The Budget must trend towards a lower fiscal deficit. There must be some more action on non-tax revenues as well as towards stability in tax laws and dealing with issues of ease of doing business. If personal tax rates, especially in lower-income slabs, are reduced, that will also absorb the impact of inflation and higher interest rates. 

How is India placed in the China Plus One strategy?

India is very well placed right now. People do want to de-risk supply chains. In that context, the global dependence on China is very high, especially from a manufacturing standpoint. There will be a shift out of China. What percentage of that share India can take really depends on us. Countries like the US are talking of friend-shoring. India is seen as a very trusted and reliable partner. If India can be more aggressive, scale up investments, look at implementation plans like GatiShakti, build up infrastructure in ports & railways and cut logistics costs, it could be the golden moment of manufacturing. India also needs to create a more positive environment for people to invest.