The interim Budget for 2024-25  did not give out any election-eve handouts and underlined the government’s commitment to the fiscal deficit glide path that will take the number to 4.5 per cent of GDP by 2025-26. In an interview with businessline, Anish Shah, President, FICCI and Group CEO of the Mahindra Group spoke about how the economic growth momentum will sustain with increased participation from the industry even as the government focusses on fiscal prudence.


Do you think the fiscal deficit targets are realistic given that we have to sustain investments to drive growth?

There is an easy answer often to say we’ll borrow more and we’ll get some short term benefits. But if you look at economies around the world that have done well, the key elements of that have been fiscal prudence. The key elements have been a focus on capital expenditure, because the multiplier on capital expenditure is much higher, as compared to a multiplier on various schemes that give sops to the large population. And that’s what we’ve seen this government do not just in this budget, but over the past few budgets. In the run up to the budget, the general expectation was that we would come in at 5.2 to 5.3 (fiscal deficit). It is actually in our view a big positive that it’s at 5.1 percent (of the GDP) and on a path to bring it down further to 4.5. Let us also look at what is driving it. We are seeing higher tax collections and that income allows us to get to a lower fiscal deficit number. The second aspect is that revenue expenditure is projected to increase only 3 per cent.  and that means that the government is being very fiscally prudent. This is a very good place to be. Then the third is that the capital expenditure will increase 17 per cent. That is a very significant growth in capital expenditure. So that is what’s going to drive growth.


Will the private sector investments start picking up? What has to change for this to happen?

The private sector has been a little slower over the past two or three years. But certain sectors like steel and automobiles have increased capex. In fact, at the Mahindra Group, we’ve doubled auto capacity in the last two years, and we will continue to add more capacity as well. What has changed? First, the economy has been doing very well and is on a very good pace at this point. And as we see greater demand, private sector will come into the supply required. And for that it needs capex, and further investments. Capacity utilization has been growing. If you look at different sectors, in capital goods and construction equipment, utilisation is at 77%. In metal and metal products its at 75%, probably a function of some of the steel capacity that’s been put in there as well; in paper and paper products it is 90%; auto and components at 75%, again, a function of some capacity that’s been put in. So as we start seeing higher capacity utilization, combined with demand, private sector has to come in with greater investments. We’ve got balance sheets that are de-leveraged, and therefore the private sector is positioned well. Let me also go back to the government numbers and and just put that in context. A growth of 17% is by any means a very strong growth number. Yes, it seems lower than 28 per cent that we saw last year. But if you look at the share of capex, in government’s total expenditure, that will be 23.3 per cent this year, which is a 30 year high. Also, the capex to GDP ratio will increase to 3.4 per cent compared to less than 2% in years before the pandemic. So capital expenditure from a government standpoint has increased dramatically. From an industry standpoint, it is very heartening to see the government put economics before politics. And that’s what’s creating a much better outcome for the industry.


Do you see cost of funds becoming a factor when it comes to private sector investments?

Over time, interest rates are not significantly higher than what we had seen in the pre pandemic timeframe. It is more important to ensure that inflation is under control, the economy is in good shape. And as that happens, rates will come down. From an industry standpoint, the risks of runaway inflation are far greater than the risk of having a slightly higher interest rate. And that is where we’ve seen a very high degree of prudence from RBI in terms of acting proactively to be able to address this issue, and they have addressed it much better than other economies around the world have.


With the Lok Sabha elections round the corner, what do you expect from the next government?

What we would look for is a continued focus on economic growth and ambitious targets around that. India is positioned very well in the world today, the world is looking for an alternative to China. And India should be the place which is not just an alternative, but in its own right be able to attract everyone in the world. So if we have those ambitious targets, if we have the actions that are taken to attract capital, to be able to make in India for the world, it’s something that will be a huge plus for industry and for the population.