What does industry want in terms of economic policies, as well as political governance, in the wake of the recent law and order problems? For any business, the safety of people is very important.
Safe work environment and economic growth-oriented job-creating incentives are the need of the hour, says Ficci’s president Rashesh Shah. In an interview to FE’s Prasanta Sahu, Shah says that recent law and order problems across the country were partly due to the lack of enough jobs. Edited excerpts:
What does industry want in terms of economic policies, as well as political governance, in the wake of the recent law and order problems?
For any business, the safety of people is very important. All these disruptions could lead to a situation where people feel unsafe. The backdrop for such unrest is the lack of jobs and opportunities to people. So, we have to focus on creating jobs. In the last three years, the macro-economic situation has improved a lot. Jobs will be created when private sector capex comes in, manufacturing sector growth comes back and the services sector grows. For all of this, a safe environment is a must. Sound and appropriate policies will allow people to do business without much red-tape or bureaucracy. On these, I will give full marks to this government. Ficci strongly believes that there should be a political process by which the disgruntled people’s voices are heard and concerns are addressed. Violence begets even more violence.
Why is jobs creation still a challenge in the manufacturing sector?
The biggest problem for jobs creation in the manufacturing sector was over-capacity in India as well as globally. That cycle, hopefully, has come to an end. Global economic growth is back on track and it is expected to be a robust 3% this year. That will spur some activity in capacity utilisation in manufacturing. The government’s steps to promote Startup India, Make-in-India and the goods and services tax (GST) will play a big role in jobs creation. Efficient manufacturing companies will take advantage of these positive changes. Eventually, private capex will pick up in next six to eight months. A big boost to private investments is expected in logistics, automobiles, affordable housing, cement, steel, power/renewable energy, mining, IT and pharma.
When do you see GST converging into three rates and excluded items covered under the new tax ambit?
We expect GST rates to converge into three rates in a year. Similarly, petroleum products are likely to be covered under GST in a year’s time. The anti-profiteering clause seems to have rattled businesses…Anti-profiteering is a short-term measure, which should go away. Ultimately, competition should decide pricing. Due to cut in some tax rates, the GST Council felt that there should not be any immediate profiteering as competition will take some time to stabilise. One can expect a year-and-a-half for this kind of anti-profiteering measure. In the long term, Ficci is very clear that this is not a healthy part of the GST.
Fiscal deficit seems to exceed the target this year. Where do you see it heading next year?
We don’t think that the government will be in a tightening mode right now. They should remain in the loosening mode given that India is in the growth stage, oil prices have gone up and the Reserve Bank of India has not cut interest rates recently. If it means exceeding the fiscal deficit target by 20-30 basis points (from the target of 3.2% of GDP this year), it is not such a big cost. We are recommending a slightly expansionary fiscal policy in order to ensure growth momentum comes back. This is not the time for fiscal consolidation.
This is the last full Budget of this government. Do you see it cutting corporate tax rate to 25% from 30% as was promised across all companies?
It should make a beginning by bringing down the tax rate to 28% as the cost may not be much. But it will show that you are going towards the original target of bringing it down to 25%. It’s also important from the point of view of competitiveness of Indian corporates, after the US recently cut its tax rates and other countries are likely to follow suit. Cess on taxes should also go away. Among others, NBFCs should be treated at par with banks on tax treatment of provisioning towards NPAs and TDS etc.
Do you think the upcoming Budget will focus on the rural sector?
I think the rural sector definitely needs a lot more attention. Rural infrastructure and a lot of rural programmes will get a boost.