CII President Rajiv Memani on Wednesday said Indian industry is increasingly concerned about the rupee’s sharp slide past 90 to the dollar, emphasising that while businesses can adjust to market-driven depreciation, excessive volatility risks unsettling corporate decision-making. “Industry doesn’t like volatility,” Memani told CNBC-TV18, adding that firms are waiting to see where the currency stabilises before reassessing their outlook.
Despite the currency’s fall, Memani said India’s overall economic footing remains strong, supported by benign inflation, steady interest rates, and a current account position that poses no immediate risk. A weaker rupee, he noted, will likely strengthen export competitiveness—particularly in services, which now account for nearly half of India’s export basket.
Memani also said India’s ongoing trade negotiations are “unprecedented” in scale, even as the long-anticipated India–US trade deal remains held up due to complex commercial and strategic considerations. A pact with Washington, he stressed, must be aligned with broader national interests, not just economic gains.
CII’s newly prepared PACT (Prioritised Actions for Competitiveness Transformation) agenda, he said, identifies a clear manufacturing strategy as critical to India’s next phase of growth. The chamber has recommended a focused import-substitution plan targeting 40–50 high-value items, potentially replacing $300–350 billion worth of imports and adding up to $30 billion annually to GDP. Memani urged the government to set up an inter-ministerial group to drive this effort in partnership with industry.
On the investment cycle, he noted that private capex is recovering but needs further support through lower factor costs—especially power—along with structural reforms in electricity distribution, logistics, labour rules and asset monetisation. He called for accelerating multimodal logistics parks, standardising Shops and Establishments rules, and exploring a sovereign wealth fund focused on advanced manufacturing and strategic overseas acquisitions.
Taxation remains a major friction point, with ₹31 lakh crore stuck in disputes. Memani pushed for faster alternate dispute resolution, consolidated GST audits, and rationalised customs bands to reduce litigation. He also suggested accelerated depreciation for domestically manufactured capital goods to nudge private investment.
With the monetary policy review approaching, Memani said industry would welcome a modest rate cut, provided global conditions and the rupee’s trajectory allow it. Lower borrowing costs, he argued, would help Indian firms stay competitive amid a volatile global economic and geopolitical landscape.
Here is the full transcript of the interview:
Q. Today the Indian rupee hit a new low, breaching the 90 mark. What is CII’s view?
From an industry standpoint, we don’t like volatility. As long as the rupee is moving in line with market trends, it’s fine. But excessive volatility starts affecting businesses. Right now, people are watching to see where the rupee eventually settles. Once there is stability, industry will take a view.
Q. At this level of the rupee, how do you assess India’s export competitiveness, especially given the current economic trends?
Overall, the Indian economy has done well. Last quarter’s GDP numbers were strong, especially relative to global conditions. But the global economy is underperforming and each country is pursuing its own trade policies. In that context, we must also assess the India–US trade deal and its potential impact.
A rupee at 90 will, in general, support exports—either by boosting revenues or profitability. Services now account for 45–50% of our total export basket, and since most of the services sector’s costs are in rupees, it becomes more competitive.
In sectors heavily reliant on imports—like gems & jewellery or crude-related exports—the domestic value addition is limited, so the benefit is smaller because imports also rise. But overall, the impact on exports is positive. From a macroeconomic standpoint, India’s current account balance, interest rates and inflation remain benign. So there’s no macro risk from the rupee-dollar movement. Overall, competitiveness improves.
Q. On the US trade deal: It was expected by fall but hasn’t materialised. What is your expectation now? What is holding it back, and what should India prioritise once it is signed?
Ans: If you look at the broader context, India’s trade negotiations over the past few years have been unprecedented. We have signed deals with the UK and EFTA, made strong progress with Middle Eastern countries, begun discussions with Israel, are in advanced talks with the EU, signed with Australia, and started conversations with New Zealand.
With the US, these are complex negotiations involving commercial as well as other strategic considerations. We are following what is reported in the press and via discussions. A trade deal with the US is certainly important and will have a positive impact on the economy, but it must be viewed through the lens of national interest—economic interest is only a subset of that. Hopefully it gets signed soon, and whenever it is signed, it will be good for India.
Q. Coming to the Prioritised Actions for Competitiveness Transformation (PACT) report prepared by CII—what is it about?
Ans: It’s not a report in the traditional sense; it’s a set of prioritised actions to enhance India’s competitiveness and drive transformation. We gathered ground-level feedback from across CII’s sectoral committees. Each committee highlighted four to five key actions that would improve sectoral competitiveness and contribute to GDP growth.
Summarising it is difficult, but let me give five highlights.
First, manufacturing is crucial. We studied India’s top 50 imports and classified them across categories—those hard to replace, those with low replacement potential, and those that can realistically be substituted. For the latter, we analysed technology availability, domestic and global demand, customs duties, and potential PLI incentives. We’ve recommended a clear strategy for these 40–50 items and an inter-ministerial group to work with industry. Import substitution here could replace $300–350 billion of imports and add $20–30 billion annually to GDP. Within three years, $70–100 billion of imports could be replaced.
Second, we examined factor costs of production and the need for a clear approach to improving ease of doing business, reducing costs, and unlocking new sectors.
Q. What does the report say on private capex, an area of concern for the government?
The report outlines ways to boost private capex, including import substitution opportunities I mentioned. Private capex is growing—perhaps not at the pace the government desires—but it is moving in the right direction, and we expect stronger momentum in the next 12 months.
To spur capex, we need efficiency in factor costs. Power is a major area. Due to cross-subsidies, industry pays ₹1.50–₹2 per unit more. Even captive plants face high access charges. State electricity boards have accumulated losses of ₹6–7 lakh crore. This must be fixed.
Privatisation of state electricity boards or allowing an additional distribution licence in each state is essential, though politically challenging. The Centre may need to incentivise or disincentivise states to move in this direction. Over time, this will reduce costs and improve competitiveness.
We also highlighted the estimated ₹45–50 lakh crore value of government land and assets. Even creating a ₹5 lakh crore pool could support strategic projects such as expanding high-speed rail corridors—multiplying the network fivefold. Much of the manufacturing for this can be done in India, boosting capacity and jobs. We’ve suggested exploring a $50 billion sovereign wealth fund focused on advanced manufacturing and strategic asset acquisition abroad.
On logistics, multimodal parks were planned—35 in total—but only five have been completed. We recommend accelerating these, increasing PPP involvement, and allowing private-sector operational management. Similar recommendations extend to labour reforms.
Q. We recently saw labour codes come in. What is the impact?
The reforms over the past six months—in GST, labour, and policies like rare earths—are commendable. But further steps are needed.
For instance, GCCs have long sought standardisation of the Shops and Establishments Act—clarity on whether employees are “workers,” rules on overtime, and uniform working hours. These may seem minor but have large operational implications.
Q. What does the report say on taxation?
Two or three issues stand out.
First, alternate dispute resolution. India today has outstanding tax disputes worth ₹31 lakh crore, with 70–80% stuck at the CIT(A) level. We’ve suggested mechanisms to unlock these—strengthening advance rulings, using mediation, streamlining CPC-related issues, and reducing the flow of new disputes.
In GST, reforms have been positive, but a company operating in ten states undergoes ten audits—some by the Centre, some by states. At least central audits could be consolidated initially, with state audits being unified later.
On customs, the government has rationalised tariff lines in the last budget. Further rationalisation—similar to GST—will reduce disputes.
For capex, industry has suggested accelerated depreciation as a nudge—especially for domestically manufactured capital goods. Increasing the depreciation rate for plant and machinery from 10–15% to, say, 33% could encourage investment. It’s only a timing difference and should not materially impact government revenues.
Q. With the monetary policy review coming up, what are your expectations?
Ans: Interest rates and inflation are at their lowest. Growth numbers are strong, but global growth has weakened. Interest rate differentials with China, Europe, and other competing markets remain 3–5%.
Given the rupee-dollar movement and assuming no risk to macro stability, industry preference would be for a slight reduction in interest rates to enhance competitiveness amid global volatility.
A rate cut is anticipated, but there are many moving parts—the exchange rate, global conditions, spillover effects. If these remain manageable, then based on GDP, inflation, fiscal deficit and global rate trends, a case exists for lower interest rates.
