'Of course, we must look into environmental factors, but not by stopping development'

Written by The Financial Express | Updated: Feb 24 2013, 06:00am hrs
Ahead of the Union Budget, Adi Godrej, Godrej Group chairman and CII president, speaks about the slow rate of growth and the investment climate in the country. This session was moderated by Editor (Mumbai) P Vaidyanathan Iyer

P Vaidyanathan Iyer: What is your assessment of the economy today and what do you expect from the annual Budget considering theres an election year ahead of us

Adi Godrej: It is clear that the growth rate this year will be the lowest of the past decade. The governments statistical department has projected it at 5 per cent and at best it will be 5.5 per cent. For a developing country at this stage of development, thats an extremely low growth rate, especially since we have the potential to grow between 8-10 per cent very easily. Its a question of the right policy, the right decisions and the right kind of governance. If the reform process is taken forward strongly, we can achieve a growth of above 8 per cent. For example, if we were to pass the Goods and Services Tax (GST), that alone from the next day would add 2 percentage points to Indias GDP, other things being equal. Other reforms like the Direct Tax Code or opening up FDI could be a multiplier factor. Another factor affecting growth is that decision-making in the government has become very slow. Many projects, especially in infrastructure, mining and power, get bogged down with clearances. Environment clearances have been very slow. Now a new Cabinet Committee on Investments has been formed which is going to look at large projects. The problem in our country is not the lack of ideas and thought but of execution. I hope for some good news on GST as the Bhubaneswar meeting was very successful and the finance minister has gone out of his way to see that the differences between the states and the Centre are sorted out.

The Budget needs to be growth-oriented and desist from things that create a negative perception of the country. Investments need to be handled very carefully. Negative decisions on any front tend to delay investment decisions. Many people told me after the last Budget that because of GAAR and the retrospective amendments, many companies worldwide said, Put on hold anything to do with India. Even now, income tax investigations are on, trying to find any old loophole to trap and collect more taxes, which puts a lot of pressure on people as they dont want to go ahead with investments and expansion in such an atmosphere.

P Vaidyanathan Iyer: Is it true that private investments have more or less stopped in the last year with the private and the public sectors sitting on cash and waiting for signals from the government

Adi Godrej: I dont think there is an intention to not invest but investments are getting delayed. When you want to invest in anything where you need the governments permissionreal estate, infrastructure, mining, powerinvestments are held up even if projects have been worked out and partially completed, either because the environmental permission or some other permission is not there. Expediting projects is going to be extremely important.

Shubhangi Khapre: Do you think the proactive role played by the judiciary is creating roadblocks in the governments decision-making process both at the Centre and state levels

Adi Godrej: It could partially be true as bureaucrats are worried about what a court order might say. But there is a slowdown and at the highest level, decisions must be taken to ensure a process which averts the slowdown. I think that stopping of things just because there is some misdoing is not correct. If there is some misdoing, people should be punished or asked to correct themselves. We are a net exporter of iron ore but I hear that we might have to import iron ore. I also find it quite absurd that India, which is so well endowed with coal, has to import coal. Of course we must look into environmental factors but they should be handled through technology and not by stopping development.

P Vaidyanathan Iyer: Is it true that two successive environment ministers have placed extreme emphasis on environmental factors and that because we overlooked such issues before, there is an overreaction now

Adi Godrej: It is natural that if you have not been adequately attending to a certain issue, when a change comes in, it is difficult to handle. There should be an interim position and a final position. It will vary from issue to issue but allowing it to affect development needs to be reviewed. I welcome the governments move to form a Cabinet Committee on Investments, but I hope it acts because at two meetings so far, no decision was taken. There are thousands of smaller projects where a similar mechanism needs to be brought in so that projects go ahead. But one decision the country needs is that everything should be growth-oriented, because without growth, we wont have equity, we wont be able to solve the problems of poverty, education, etc.

Sandeep Singh: The FM recently said that there are greenshoots in the economy. Do you see that on the ground considering that the industrial growth figures dont reflect his statement

Adi Godrej: I think there is clearly an improvement. There is an improvement in sentiment and perception after the GAAR rules were amended and after the Shome committee was appointed. It will take a while before it shows itself in a better growth rate.

Subhomoy Bhattacharjee: You said the Budget should be growth facilitating, but GST is not likely to happen before 2015. In the light of that, what steps need to be taken in the Budget for growth

Adi Godrej: I dont agree that it wont happen before 2015. There is an attempt to get it done earlier. I think there should be nothing in the Budget that creates a negative perception. Secondly, we should have Budget provisions that encourage growth. For example, investments are slow. So you can say that any investment made for a two-year period might get an accelerated depreciation or an accelerated investment allowance. Some incentive for early action should be provided. There has been talk of an inheritance tax but no developing country has an inheritance taxit is a developed country phenomenon. When you need high rates of savings and high rates of investment, the inheritance tax becomes very negative. Peoples attention then goes towards how to protect themselves against the inheritance tax rather than towards investments and growth. There is talk of higher rates of taxes on higher-income people but higher rates of taxes in this country never led to higher revenue. In fact, whenever we have cut the rates of taxesincome tax or excise dutywe have collected more.

Lalita Srinivasan: Do you see a decline in consumption

Adi Godrej: I do not see any major decline in consumption. But if we continue to have 5 per cent rate of growth, then consumption will be affected, consumer sentiment will be affected.

Sharvari Patwa: Large players like you are present in real estate but dont want to get too involved with governments. So, when the municipal corporation invites bids to build roads and infrastructure, large companies do not bid. What is the solution

Adi Godrej: There should not be a case by case review of projects by the state or Central government. There should be rules laid down. Unfortunately, there are many different rules and many different departments and papers move from one to the other. The country would run much better if there are standards and you go by them and nobody interferes.

Shubhangi Kharpe: Do you perceive a paradigm shift in the functioning of the Finance Ministry under Mr Mukherjee and now Mr Chidambaram

Adi Godrej: I would not like to comment on individuals but I do see that the Finance Ministry has brought in some good international thinkers such as Raghuram Rajan on important positions. I gather that the Finance Ministry is very concerned with the slow growth and they want to do things to encourage growth.

Subhomoy Bhattacharjee: We have seen the steps taken by the finance minister to reduce expenditure, but what are the revenue-raising measures that he should take in terms of taxation proposal

Adi Godrej: There can be no raise in revenue by raising rates of taxes. One of our big problems is that a large section of people whose income is in the tax-paying bracket do not pay tax. The major reason is that people are very worried about paying taxes for the first time because they think their past is going to be opened up. If we say that new tax payers will not get investigated for the past except in some exceptional cases, I think you can attract millions of people into the tax net. And broadening the tax net can get a lot of tax revenue.

P Vaidyanathan Iyer: Yashwant Sinha recently said that the government is doing very little to reach out to the Opposition and thats why many Bills which require parliamentary approval were stalled. What has the industry done to ensure that this disconnect is bridged

Adi Godrej: Over the last six months, CII has discussed issues with the states, the Opposition and the Centre, especially things like GST, FDI, etc. Sometimes politics does hold things back but there should be give-and-take. I think it is the patriotic duty of the individual to look into what is good for the country rather than sticking to sectarian interests.

Smita Nair: There are two PM contenders emergingRahul Gandhi and Narendra Modi. Who do you think will be good for the growth you talk about

Adi Godrej: I dont think a particular prime ministerial candidate is going to be able to change things. The system needs to agree that it needs change. Individuals alone cant do that unless there is someone charismatic who has a following, which these days you dont see almost anywhere in the world.

Sandeep Singh: The finance minister recently said that foreign investors seem more optimistic about investments in India than domestic companies who are looking overseas for investments. How do you see this

Adi Godrej: Indian industry does not invest outside instead of investing in India but in addition to investing in India. As soon as companies get to a scale and size where they are globally competitive, global expansion is both desirable and valuable. Indian companies fortunately have reached that stage where they will look outside. The question is that we must incentivise, we must create a climate where investments are considered attractive.

Anil Sasi: Recently, there has been a spate of tax notices to various foreign firms and some Indian firms are also being sent notices. Is the government getting desperate on the revenue front and is there a fear that this will ward off possible investments

Adi Godrej: I think any movement of this sort where you go after tax payers, trying to unfairly collect more, will have such bad sentiments that it can affect the mood and is unwarranted.

Stuti Shukla: Why is it so tough for the average citizen to afford a home in Mumbai

Adi Godrej: High interest rates and mortgage ratesyou need to bring down the rate of interest. The interest rates in our country are extremely high at 11-12 per cent. It has been justified on account of a high rate of inflation but I think the high rate of interest is actually causing the inflation. That it is affecting our growth, our investments and the rupee is depreciating. When the rupee depreciates, the amount we spend on crude oil, minerals and other imports goes up.

P Vaidyanathan Iyer: Would you attribute much of our slowdown to internal policies

Adi Godrej: I think it is our own lack of reforms and governance issues that have led to the slowdown. I would say only 20 per cent of the cause is global and 80 per cent is our slowness in reforms.

Shubhangi Khapre: What is your view on land reforms and will they impact industrial growth

Adi Godrej: Clearly, there are some issues which need to be resolved but the cost of land may go up significantly. High cost of land acquisition will be detrimental overall. However, there are provisions that allow states to exercise their own judgment and there is lot of land with many states that is available, competitively, that may come into the market.

Anil Sasi: Over the last few months, in sectors such as power and roads, entrepreneurs are going back on the tariffs they bid, costs they quoted. Is that something of a worry

Adi Godrej: Overall, it is a concern. Many of them have backed out of projects because the environmental clearance and the land acquisition they were promised by other government authorities have not come through. Its part of the same story where you agree to a project but the detailed agreement to get the project through is unduly delayed.

Alaka Sahni: Your wife Parmeshwar is a fashion icon. How has that rubbed off on you

Adi Godrej: Almost every time I change clothes, she asks, why are you wearing this and not that. She has great taste and she does many things, including interior decorationshe has designed some of the best restaurants in the country. She is a board member of Godrej Properties and is very active in designing and developing Godrej Properties. She also runs an organisation that works on AIDS, especially paediatric AIDS.

Smita Nair:What do you think about the city Mumbai What should be done here

Adi Godrej: We need to improve infrastructure. Mumbai is the third largest metropolitan area in the world. One mistake we are making is on FSI (floor space index). Almost all big cities in the world have large FSI. We need to allow higher FSI and tax that FSI and use the money to build infrastructure. That would create a win-win situation. I would say an FSI of between 10 and 15 should be good for a city like Mumbai.

Transcribed by Sandeep Singh