Both RBI and the finance ministry did well to nudge banks to pass on successive rate cuts announced by the central bank; and the nudge seems to be working now.
Even as India passes through a slowdown, Assocham president BK Goenka believes signs of pick-up in consumption are visible. Sharing his views during an interview with Rishi Ranjan Kala, Goenka said the government led by Prime Minister Narendra Modi is responding effectively to the headwinds being faced by the economy, which would yield results in the long run. Excerpts:
How do you view the direction in which the economy is heading? What, according to you, are the choke points?
While our economy, in line with the global economy, is going through a phase of slowdown, there are early signs of pick-up in consumption demand which should accelerate as banks are slowly and steadily reducing interest rates and rural reports suggest a revival on the back of a good monsoon. Both RBI and the finance ministry did well to nudge banks to pass on successive rate cuts announced by the central bank; and the nudge seems to be working now. As corporate earnings of the second quarter indicate, volume growth seems to be returning partly because of cyclical factors and partly due to some hard sales and discount push by companies, particularly in the consumption space. Pick-up in Diwali sales do give us confidence that things should improve hereon. As for choke points, well, there are no such issues. The problem of NPAs in banks appear to be largely bottoming out, while the government and RBI are working hard to fix the issues before NBFCs and HFCs.
How should the country address these headwinds?
We have to keep identifying specific problems and address them. I must compliment Prime Minister Narendra Modi and finance minister Nirmala Sitharaman for responding well to each of the issues which confronted the economy. In fact, a substantial reduction in corporate tax by almost 10 percentage points was a bold initiative, especially when there is a resource constraint with the government. The decision would yield handsome dividend when the global economic environment changes for better.
Are the efforts being made to address such issues by the government adequate or do you think there should be more measures?
As I have said, both the PMO and the finance ministry have been receiving constructive feedback from different sectors of the industry and then acting decisively on the critical issues — whether it is in the real estate and financial sector or ensuring that the domestic industry does not face unfair competition and dumping of goods from aggressive economies. Consolidation of banks is yet another decision which will yield results in the long run. Significantly, there are assertions from some senior ministers about the government’s serious move to divest stake, including strategic sale of PSUs. That is an admirable direction and needs to be speeded up. Besides, filling up the revenue gap, such steps would bring in more professionalisation in some of the critical PSUs. The government is making serious efforts on Air India sale and hopefully, it will get some suitors. The programme on start-ups is laudable and may get further refinement as we move along. A big push in disinvestment would also address the issue like fiscal deficit, raised by rating agency Moody’s. The non-tax revenue should fill in the revenue gap which may arise out of slow consumer demand.
Do you feel the corporate tax cut and other measures taken by the government will be enough to enhance spending? Also, would these attract foreign investment?
Foreign investment is a function of several commercial and strategic factors, including the global business environment. When the global economy itself is going through a rough patch, it is unrealistic to expect hoards of funds flowing in. Also to be noted is whether the money is coming in greenfield or brownfield. In scenarios like the one prevailing at present, where there is a surplus capacity available, we would see more of brownfield foreign investment. In fact, several large deals for strategic partnerships have been announced. The only point to be ensured is that the bureaucratic clearances be speeded up and litigation avoided.
As for the impact of corporate tax reduction, India is now as competitive as other Asean and Asian economies in terms of taxation. This factor would surely be evaluated by the potential investors along with other factors like a huge market in India where the consumption theme would stay alive for several decades because of our demographic profile, rising middle class, aspirations of those at the bottom of the pyramid and the government’s outreach programmes for financial inclusion and farm support.
Is the Rs 25,000-crore fund for real estate adequate to address the sector’s woes? What else do you think is required to revive the sector?
It is a path-breaking decision and the best way forward to deal with stressed assets. It takes huge investment and years of enterprise sweat to create national assets in any sector. While ups and downs are bound to take place in any economy, the pragmatism lies in the way we deal with the situations when the chips are down. That is what has happened in the real estate sector, which is undergoing massive structural changes with a lot more regulation, transparency and protection of consumer interest.
In the long run, this is good for the industry, the consumer and the nation. The Rs 25,000-crore Alternative Investment Fund (AIF) with contribution from the government, SBI and LIC is a good starting point and if the results are positive, more of commercial and sovereign funds may come forward. The good thing is that this is going to be run professionally.