Will the government be the key contributor or the private sector towards the next 5 years taking India to the mark of $5 trillion? We have been hearing a lot of wealth outfits and their respective sales team speaking about the current ranking of India being the 5th largest economy on the planet. Well, others become slow that’s why I came first in the basic rationale behind it. We can speak patriotically about the Indian economy and the outlook of growth but when we look at a few macros other than the GST numbers we find significant opportunities and gaps.
Where the private sector investment does stand to support the Indian GDP growth to the level of $5 trillion is a major question to be thought of. If we look at the historic numbers we find that gross fixed capital formation has fallen from 27.5% in FY-08 to 21.8% in FY-20. The private sector investment cycle is now two decades low and slowing from 22.93 in FY07-12 to 7.90% over Fy-17-22 despite of income tax being reduced from 30% to 22%. Sales and profitability growth as per the market terms do not reflect the true character of the Indian economy neither or the state of business affairs.
Cash holding has gone up and fixed assets formation has become stagnant. The reason for the birth of the PLI is to attract capital and gross fixed asset formation in the economy. The current status of China +1 and further now Europe +1 offer significant opportunities for India unless the private sector comes into place. At the same time, government capex has been significantly high which resulted in the current economic growth. PLI is focused towards making India shift from import to export. Under the PLI the committed business amount is $58 billion which stands out to be 21% of the BSE 500 companies’ capex for one year.
But does the current geo-political situation will impact the private sector investments and also meet the committed amount in PLI? PLI will draw the attention of global investors and manufacturers and less Indian domiciled. We are happy with the growth in sales and profitability and the increase in share price under a conservative approach and not being aggressive. MNCs are focusing on PLI since they have a larger market to supply and it’s more about shifting the production base from China the EU or Taiwan. Whereas we Indian companies want the incentive structure for PLI to be from day 1 instead of waiting for 2 years to set up manufacturing and then the incentives to be disbursed after 5 years from the sale of goods. The problem between the government and the private sector is that both of them think them both earning at the cost of each other. This might be a big hindrance to the race of $5 trillion GDP for India. PLI might become successful but may not be for Indian companies compared to the global MNCs.
To set an example India will start up in different sectors through PLI but that may not be at the advanced stage but at the lower end. For example, in ships, Taiwan is the King but India might start with some lower-end nodes and will gradually scale up the business. This is a big place of gap to be identified and should be worked upon by the Indian companies.
The private sector needs to move ahead from the curve of sales growth and profitability towards long-term economic benefits aligned with the Indian GDP. PLI scheme is not evolving as compared to the upcoming changes in the global and as well as within the domestic economy. Most of the sectors in the PLI are new-age sectors and hence matured companies’ risk-taking will be the late trigger. We will find VC-funded companies coming up and creating challenges for established companies. PLI is to be tailored further in terms of new-age companies so as the entrepreneur challenge of gross fixed asset formation comes into place. We will be coming up ahead in continuation to this how strategic cost management is playing and will be playing a big role in PLI and $5 trillion GDP growth.