It is time India created a sovereign wealth fund, CII President Rajiv Memani

The government’s assessment is that India’s macroeconomic health is in a relative ‘Goldilocks’ situation. How do you read the present state of the Indian economy?

I am not qualified to comment on whether it’s a ‘Goldilocks’ situation. From a growth standpoint, we may not have achieved our full potential, but relative to what’s happening in the world today, India demonstrates a stable hand in a pretty fractured global order.

If you look at all the domestic economic parameters, they are all pointing in the right direction. Interest rates are probably at one of their lowest points. Inflation is extremely low. Food inflation is under control. Exchange reserves are very strong, and bank balance sheets are very strong. At this stage, looking at corporate balance sheets and the amount of fundraising that’s occurred, I believe that’s also very strong.

The resilience and buoyancy of the capital markets are very clear. The dependence on foreign capital and capital markets is reduced. We have almost $35 billion in SIP money flowing into the capital market, and that gives enough capital to grow businesses. When dealing with a volatile world, having strong inherent strengths is crucial, and that’s where India has performed well.

The second factor is policy consistency. There isn’t an unevenness in policy; one knows what to expect. While some may desire a greater pace of reforms and change, I would say, by and large, stable changes have been implemented. All of these have really helped in putting India in a very good position.

We are very happy that the inflation rate is below the median of the targeted range, but do you think such a low inflation rate on a sustainable basis is good for the economy, considering that we need a consistent virtuous cycle?

It is much better than having a higher inflation rate. The government has stated that it is comfortable with 4 per cent inflation. At present, the rate is 2.8 percent, which is by and large positive.

It should give a fillip to consumption because there is more disposable income. Interest rates will be lower, leading to a reduced cost of capital, thereby enhancing manufacturing competitiveness.

I believe some inflation is indeed good. While it’s hard for me to pinpoint whether 2, 3, or 4 per cent is ideal, it is definitely better than 6, 7, or 8 percent. Anything between 2-4 percent is a good number, and we are right in the centre of that range.

Now, regarding a trade deal with the US: agreements have already been completed with China and Vietnam, among others, and now it is India’s turn. What are your expectations?

In the first tranche, it would be better if we can address issues that are politically more palatable and acceptable to a broader range of stakeholders. As long as a significant portion of stakeholders perceive a greater market opportunity, and it’s clear that India and the US are pursuing a much more strategic relationship—thereby enabling the import of critical technology or long-term investments between the two countries—I believe it should be fine.

Given that a growing number of trade agreements are also in the pipeline, do you think India should be more aggressive in negotiating them?

The Indian government has not been in a rush to compromise. For some other geographies, mobility could be a very sensitive issue. One could keep waiting to determine whether to enter into such an agreement or not. My view is that both countries need to respect politically unpalatable or sensitive issues, but strive to achieve win-win agreements.

There is increasing engagement between the government and industry. Frankly, the government is seeking increasing inputs, and the level of detail they are delving into on some of these matters is truly exceptional. However, India needs to be more cautious regarding non-trade barriers.

This is an area where considerable patience is required, and it must be ensured that while tariffs are reduced, they do not become meaningless due to excessively high non-tariff barriers.

GST has completed 8 years. However, we have not seen a GST Council meeting take place in the last six months. How is this affecting corporations?

GST is probably one of the most remarkable reforms that has happened. However, there are three or four areas that need to be addressed. I cannot comment on whether the periodicity of GST Council meetings has an impact, but irrespective of the Council meetings, a significant amount of dialogue occurs between the state and the Centre, and substantial work is also underway.

Regarding rate rationalization, the amount of work required to arrive at a new rate and then the ability to achieve consensus is truly immense. I am hoping and presuming that some of the background work for rate rationalization is progressing.

Another area is the accumulation of input tax credit, which needs to be eliminated. Then another challenge is GST assessments or audits. Many are facing issues and challenges that need to be addressed.

So, conducting multiple audits, proportional to the number of states a company operates in, can easily be streamlined. Audits could be conducted at one or perhaps two locations if it’s a large company. Also, regarding the new compliances that have been introduced, can they be implemented in a phased manner?

Regarding GST audits, when high-pitched assessment orders are issued, how does one ensure accountability? Otherwise, it is a real challenge for the company to receive 8 different kinds of orders from 8 different authorities. From an audit and compliance standpoint, when the government already has data and everything is digitally available, asking assesses to file reams of papers doesn’t make sense.

The government has already defined the SOPs for audits in each of the states. If those SOPs are implemented, and if there is better appreciation and understanding of technology across all stakeholders, with all necessary information available, then the entire audit process can be made much smoother. This will also save a lot of hassle, time, and bring a lot of efficiency, particularly for MSMEs.

What are the three critical reforms that you believe should take place in the next one or two years?

Ease of doing business is a significant issue, and it can be resolved if processes like land acquisition or the issuance of No-Objection Certificates (NOCs) for environmental matters are expedited. Environmental clearances sometimes take a long time for industries with very low environmental impact.

If a company is already located in an industrial park that is environmentally compliant, do individual factories within it still need to obtain separate environmental clearances and fulfil all related requirements? Such simplifications can truly unlock significant time and accelerate the ease of doing business.

The second area is that more GST-like and Manufacturing Commission-like platforms can be created, as many issues require resolution and necessitate active participation from numerous ministries at both the Centre and state levels.

Thirdly, I believe that India creating a sovereign wealth fund, especially for providing capital to MSMEs and using disinvestment as a funding mechanism for this fund, would be very important. Today, the market capitalization of listed government securities is almost $500 billion.

There is an opportunity that some of this can be monetized, and we can explore creating a sovereign wealth fund that can address strategic areas where India has supply chain vulnerabilities or specifically focus on MSME financing, especially if we are looking at scaling operations, creating more jobs, and fostering greater manufacturing activity in the country.