The Centre should keep spending momentum while the Reserve Bank of India (RBI) should immediately cut interest rates to support economic growth, as inflation rate is much below the projected level, industry body Ficci’s new president Sandip Somany has said. With an interim budget on the horizon, Sumit Jha and Prasanta Sahu spoke to Somany on a host of issues concerning the economy, including muted private sector investments. Excerpts:
What do you expect from the Interim Budget or the full Budget?
We will certainly request the government to reduce corporate tax rate to 25% for all companies. The US has now reduced taxes to 15% for corporates while our neighbouring countries charge around 20%. Even in England, the tax on companies has been reduced.
Does direct tax collection growth provide enough scope to bring down tax rates for the whole of Corporate India?
The direct tax numbers are slightly ahead of target. I think, the tax base has significantly increased. But the tax collection is not proportionate to the increase in tax base. As GST settles down and the economy continues to improve in the coming years, the collections will further improve.
As private investment hasn’t picked up in the manner it was expected, do you believe the government should continue its spending momentum?
I have two inputs on this. The government would need to continue to spend, especially on the infrastructure sector. If the spending on this side continues, it would be good for the economy and would lead to higher consumption.
On the other hand, private sectors’ capacity utilisation is also gradually creeping up, and has now reached about 75%. At this level, even the private sector would have to start looking at new investments, otherwise when the uptake comes there won’t be any spare capacity left.
So, in the course of the next year, you will also see improvement in private investments. As far as the fiscal deficit goes, the government has been very astute in the management of the deficit. I personally believe if 3.3% of GDP (fiscal deficit target for FY19) becomes 3.5%, heavens will not fall. We are in a low inflation economy currently and hence, quite safe even if we breach the fiscal deficit target.
What would push investment in your view — the demand side or the reduction in interest rates?
I think the cost of funds in India is significantly higher than it should be. The most important thing to do is to reduce interest rate by at least 100 basis points. What has happened is that inflation has come down even below the RBI targeted rate of 4%. Inflation rate is down to 2.3% and it looks like it will sustain because there is enough agricultural output. Crude oil is expected to remain between $58-65 a barrel from the highs it had reached a few months ago. People are shying away from investment because of high interest rate. Now, I think inflation is quite benign and RBI should get comfort from this and act decisively on interest rates.
When do you see demand in the economy coming back?
If interest rates are brought down significantly, the demand stimulation will automatically happen. Because its not just the corporate investments that are held back due to high interest rates, it is also impacting consumers as the EMIs on vehicles and home loans and then it creates a barrier for the customer to invest.
It’s the season for farm loan waivers. What do you think the Central government should do?
Nearly Rs 3 lakh crore of farm loans are being waived off. If our farmers are in deep distress and it is a quick way to solve their problems, Ficci has nothing against it. My only word of caution here is that it’s not a permanent solution.
In a particular state, this problem can again come in 6-8 years. So, we aren’t solving the problem. The solution is that the farmer gets more remunerative prices for his produce. Instead of spending money on farm loan waivers, if various state governments divert some of this money and make a modern supply chain for agriculture produce, including cold storage, the farmer wouldn’t be forced to sell his produce when the price is at its lowest.
Why do you think the corporate advance tax collection has grown robustly even though the earning of the listed companies have been muted for some time?
This is a direct result of GST implementation. The government now has access to profit and loss account of any company from GST database. It has reduced the manoeuvrability of companies in evading taxes that they enjoyed earlier.
What are your thoughts on the proposal to raise the GST threshold limit to Rs 75 lakh from Rs 20 lakh?
For supporting really small traders, a Rs 75-lakh threshold is an appropriate limit. It will also reduce the amount of paperwork and intervention that a trader needs to do at that level for a relatively small turnover. So, it’s a positive move.
What in your opinion has resulted in the large shortfall in GST collections compared with what was expected?
Initially when GST was launched, there were issues as it was quite complex. But over the course of time, the GST Council has sorted out operational issues quite well. Now, it’s the question of including more people in the tax net. The rate will further go down in future. The implementation in terms of people who are trying to escape the tax net should be tougher going forward. The authorities need to have better detection to particularly target smaller companies that indulge in this as opposed to bigger firms that do not have such a scope.
How do you look at the orders coming from the National Anti-profiteering Authority considering the corporates feared such an institution?
In general, the government at the launch of GST had said when the rates come down, the consumers should benefit from this reduction. That spirit is something a company should abide by. Its true that there is grey area, especially when it comes to stock in the market as every company would have stocks with distributors and retailers. What to do with such stock is an area of some confusion.