With a series of structural reforms already rolled out over the past year — ranging from income tax changes to GST 2.0 — market participants believe much of the groundwork for boosting consumption has already been laid. However, the next phase of India’s growth story will depend less on incremental consumption measures and more on manufacturing, investment, and capital formation, according to Nilesh Shah, MD & CEO, Envision Capital.

Speaking to ET Now, Shah acknowledged that while reforms are beginning to reflect in consumption data, the impact remains selective.

“But like we were discussing earlier with Radhika and Sandip as well, so much has already been done through the past year, be it income tax, be it GST 2.0, etc. It is already reflecting now in the consumption numbers, albeit very-very selectively. What more can the capital markets want?” the anchor asked.

Shah pointed to manufacturing as the single biggest area with untapped potential.

“So, there are two areas which have the maximum potential to kind of do. One is manufacturing. We have had PLI and we have had some of the indirect reforms like GST, simplification of GST, which have essentially been a big positive for manufacturing. But I believe that we now need to take a more holistic and incentive-driven approach which will boost manufacturing and encourage not necessarily just the MSMEs or the mega, but the slot in between,” Shah said.

He added that India needs to significantly expand the number of manufacturing units, particularly in less-developed regions.
“There have been talks — I think Mohandas Pai made an excellent suggestion — that why do not we identify those 200–250 not so developed districts in the country, in each district encourage entrepreneurs to come in there. The number of people you employ, you get an incentive based on that. It is very easy to track because you link it to the provident fund contribution. So, the challenges around leakages and misuse can be minimised, but I think it is a great suggestion,” he noted.According to Shah, while ease of doing business will continue to improve incrementally, manufacturing must now take centre stage.

“Manufacturing is one area because services have pretty much taken us to where we are. Services are already maybe 50% to 60% of our GDP. Nothing more really needs to be done there, but it is manufacturing. Along with that comes energy infrastructure — all of that,” he said.

The second major reform pillar, Shah said, is investment — both domestic and foreign.

“We will need a lot of capital if we have to grow at 7% to 8%. And how do we attract that capital? Both domestic capital and foreign capital will have to be welcomed, for which we will need to make many-many changes,” he said.

Highlighting taxation as a key area for reform, Shah added, “Over the years we have introduced taxes on capital gains, on dividends, on buybacks. There is also the STT which exists. I think we will have to either remove many of these or rationalise many of these to attract foreign capital. These are the two areas where I believe that the budget is the best platform to truly usher in reforms and put us into that next growth league.”

On consumption, Shah said there is little incremental policy action left for the government to take.

“No, we cannot do much incrementally more to kind of boost consumption. We have ensured that consumers pay less income tax and GST. I do not think beyond this much needs to be done. What can only be done is to essentially grow incomes. When you grow incomes, essentially individuals tend to spend more and that itself drives consumption,” he explained.

He emphasised that income growth — driven by manufacturing, exports, and infrastructure — is the most sustainable way to revive consumption.

“I clearly think the focus has to be around manufacturing, trade, export competitiveness, infrastructure, investments. These are the four or five areas where you really need to… You address these four or five things, consumption from here on will automatically get addressed,” Shah said.

Addressing concerns over why consumption has not rebounded more broadly, Shah said traditional metrics may be missing important shifts within the economy.

“There have been pockets where consumption has happened. So, we tend to look at it from one lens — basically just the consumer product companies. Within that, it has been a mixed basket,” he said.

He cited Nestle India’s recent performance as an example.

“Yesterday or day before, Nestle came out with some stellar numbers. First, when you look at the numbers, you would not even believe these are Nestle India’s numbers. You would think this is some new-age company’s numbers or some new-age consumer product business or platform business,” Shah said.

He added that quick commerce and newer consumption channels are driving incremental growth.

“If you kind of look at what the quick commerce guys are growing at, look at that growth. That really tells you where the incremental growth in consumption is coming from. So, I think it is just that within consumption the frontiers have changed,” he said.

According to Shah, while traditional FMCG may show mixed trends, broader retail and appliance segments are seeing strong momentum.

“If you look at some of those retail chains which are selling consumer appliances and look at their numbers, they have all grown between 20% to 25%. That is a great number to have for an economy which is growing at 7%,” he said.

Summing up, Shah said the government has largely done its part on the consumption front.

“Now there is nothing more that the government can do for consumption. They have done what they ideally should have done, and they have done a great deal on that. The best way now forward is to grow incomes, and to grow incomes is going to be focused back on manufacturing, trade, exports — all of that,” he concluded.