India needs a stronger reform push to attract investment: CII chief

“Strategic considerations should sometimes take precedence over short-term market economics,” says CII President R Mukundan, arguing for a stronger focus on domestic resource security and long-term competitiveness. In an interview with businessline, Mukundan discusses the lessons from the West Asia crisis, India’s trade negotiations, FDI trends, the future of PLI schemes, and the reforms needed to sustain growth and attract investment. Edited excerpts:

To what extent did the West Asia crisis affect Indian industry, and what lessons emerged from it?

The crisis unfolded in three phases. The first was the immediate emergency response, where industry and government worked closely to address disruptions in energy supplies and logistics. Constant engagement helped mitigate many of the challenges. The second phase involved medium-term concerns around supply-chain resilience. Efforts were made to identify alternative sources of supplies, leading to greater diversification towards regions such as Africa and Latin America.

The third phase is about preparing for future crises through structural reforms. CII has proposed reforms in four broad areas: improving the ease, cost and speed of doing business; strengthening agriculture and the rural economy; boosting exploration and mining; and enhancing the competitiveness of MSMEs.

Since concerns on oil shortage hit us the most, what reforms are being suggested in exploration and mining?

The crisis highlighted the need for greater domestic sourcing of critical resources, including oil and gas. CII believes India should create mechanisms that provide greater certainty to companies investing in exploration. Strategic considerations should sometimes take precedence over short-term market economics. Countries such as China support the development of domestic reserves even when production costs are higher than prevailing global prices through minimum government guarantees. Such an approach helps build strategic reserves and strengthen long-term energy security.

US Trade Representative Jamieson Greer is in India and is advocating an early trade deal. Is industry in favour?

The India-US discussions are welcome as it is the biggest deal in the pipeline after the one with the EU. Imports are not an issue as the domestic industry can compete. What we should be more careful about is tariff on our exports, as we have to be competitive with respect to peer exporters in the US market. 

The India-UK FTA is being implemented on July 15, eliminating tariffs for a vast majority of Indian exports  but also lowering tariffs on UK imports. Is the Indian industry prepared for it and other FTAs?

Industry has certainly risen to the challenge. For example, with the UAE, bilateral trade has crossed $100 billion. The government has set some targets for the industry in terms of where we should be and these will soon be announced. We are confident that improving utilisation of FTAs will remain the focus. Each agreement offers opportunities in specific sectors where India can increase its share of exports.

How important is China for the Indian industry?

As far as China is concerned, we should welcome technology, we should welcome capital. But China is our competitor, so we need to focus on just getting them to invest here. 

Amid a slowdown in investments, what is your view on the Production Linked Incentive (PLI) scheme?

We have recommended that the government continue to focus on the existing sectors and have proposed some others, including aerospace. In addition to PLI, we need to focus on newer areas such as defence so that export opportunities gain momentum. However, incentives alone cannot drive investment. Large-scale investments depend equally on broader reforms such as faster approvals, timely land allocation, power and water connectivity, and efficient project implementation.

Foreign direct investment inflows have been weak. What needs to be done?

Improving the business environment is important, but India must also adopt a more proactive investment promotion strategy. There is a need to market India more aggressively to global investors and provide a concierge-style handholding mechanism to help companies navigate approvals and operational challenges. Some States have already adopted similar approaches, but a coordinated effort involving the Centre, States and industry is required. Positive experiences of existing foreign investors should also be leveraged to strengthen Brand India globally.

What are CII’s key recommendations on taxation and fiscal policy?

CII’s recommendations are largely procedural. These include time-bound GST refunds, faster dispute resolution and rationalisation of certain GST provisions, including input tax credit-related issues. There is also need for quicker resolution of long-pending direct tax disputes. We believe India’s corporate bond market should be deepened to attract greater overseas participation. Given that bond markets globally are significantly larger than equity markets, they offer a major opportunity to mobilise long-term capital.

Talking about quicker resolution, how important are IBC (Insolvency & Bankruptcy Code) reforms?

IBC certainly is a better mechanism today than what used to be. We have gone through multiple layers of reconstruction and other processes which have taken forever. But I think certainly these have to be further improved. We should continue to progress.