Projecting India's growth to be at 8% this year, far more than 7.6 per cent projected by Government, young, dynamic, articulate President of the Confederation of Indian Industry (CII), Naushad Forbes talks about various issues on companies' loan defaults, downtrend of exports, Panama Papers tax haven, Jeweller's strike etc. In an exclusive interview with Amit Goel & Madhusudan Sahoo, he says defaulters are not criminals, but only companies committing illegal activities in business should be punished. Besides, he also points out that jewellers and rich farmers should also be taxed. Excerpts
Any disclosures would you like to make in reference to Panama PapersIJ
Personally I think if any legitimate incentives available to businesses, same would be used by them. And why notIJ As long as they are within the legal framework. But it’s a personal choice. My companies, for example, have no such tax haven investments. But I am not at all criticising those who have it. We have been paying taxes for last 40 years whatever the tax rates. I think industry should be happy if the tax rates are around 20-25 per cent.
As an industry body, how do you see economic growth in the countryIJ
It is very good time for the industries, both domestically and internationally. In another two years or so, we will be in election mode and many initiatives of the Government would also start bearing fruits. On growth front, domestically we are doing well and from international prospective, most of the world economies, including the US and China, are doing okay. For China, it is even projecting to achieve 6 per cent GDP growth, while Brazil and Russia are struggling to some extent. And for India, we are growing at a satisfactory rate and the growth is seen at around 8 per cent.
But the Government is projecting 7.6 per centIJ
This growth is not an optimism but an assumption. That there will be normal Monsoon after two years of drought, our agriculture sector will contribute significantly to the GDP.
As far as micro fiscal consolidation and corporate results are concerned, businesses are not doing well despite our satisfactory growth projection. Are you satisfied with profits that the industry is showingIJ
Clearly none. No one is happy about the corporate result trend. If we look at it minutely, on an average most of the companies are not satisfied with their current profit numbers which are the reflection of low demand.But the trend is reversing. Most of the companies see moderate rise in demand this year which would help in getting excess capacity absorbed. Then we can see a turnaround this fiscal definitely followed by an investment cycle. As far as companies' earnings are concerned it may not be great, but its not too terrible. There are two sectors which are hit the most - infrastructure and construction sector - which are big problem in the industry. Outside these sectors, we do not see that any company bleeding. If we even compare these profits in international benchmark, they are decent and absolutely fine, not terrible at all.
Is China's economic growth good or bad for IndiaIJ
China's growth is good for the world without any question and if the world grows, then it is good for us as well. For example, if China grows even at 5 per cent, it contributes more global economy than the US and India. For India's growth, infrastructure and road sectors have been major bottleneck for its economy. But if we take a look at infrastructure, we have seen that there is a significant turnaround in performance. It initially started with the road sector where there has been a push by the Government. Fresh and stalled projects have been executed in speedy and transparent manner by the Government to revive these two sectors. In CII, we have associated councils and one of them is construction and manufacturing council which is reporting a strong business growth in this particular sector.
Do Modi-led Government reforms like Start-up India, Stand-up India and Skill India impact the business growth in real sense or just a commitment onlyIJ What are your views on thatIJ
On investment front, first we will see revival scenario in demand which is just few months away. In terms of widespread recovery, many of its policies should be in place in times to come. let us take an example of the two skill areas in particular. Over last two years, these two skill areas that started with the previous Government have been expanded by the current Government. For instance, Skill Development Corporation is one of them, covering more than 350 skills that will help industry in the long run. That framework is now ready with the Government and has been already deployed in many sectors as well. Now, we can start seeing the benefits out of it. Secondly, a year and half back, the Government had passed a new Apprenticeship Act in December 2014 for all states. Some states have already implemented and some are yet to do soon. The new Apprenticeship Act is a huge enabling legislation by the Government and provides much flexibility to the companies for their outcomes they do intend. Besides these two key areas, 'ease of doing business' initiative by the Government is a very powerful area which can reverse the direction of the businesses. There are two things we need to do. One, we should have details of local, state and inter-departmental regulatory systems in place because a lot of ambiguity and clarifications are required to improve the business climate.
World Bank has ranked India at 130th place on 'Ease of Doing Business' and the Government is trying now to make it to the top 50 in the world. What needs to be done by the Government in particular to achieve thisIJ
'Ease of Doing Business' in India is gradually improving at its own pace, but there is a long way to go. last year, there are over 98 issues identified in order to ease of doing business but now it has gone up to 350 which is huge in number. We need to work on these issues and a lot to be done by us as well, be it at the central or state level. It has been observed that many states have been competing each other on their business ranking. Though Gujarat claims to be No 1 and Andhra No 2 in ease of doing business, even more needs to be done by the states to improve in national level which can be translated into the world ranking as well.
Keeping Mallya case in view, what is your take on default by companies. Should the defaulters not be punishedIJ
Defaulters are not criminals, but companies which indulge in illegal activities should be punished. In term of stressed assets, bank defaults etc, there are three aspects - moral, legal and business. If we argue about it, be it Government, media or industrialists, our focus is on the legal aspect only. The moral issue is personal outlook and sometimes it upsets us too. For example, if the person is using his own money to consuming highly conspicuously, I may not like it but that’s his choice. Secondly, on the business side, I think default means that the businesses are at the risks. Default is a normal aspect of life, not a crime and defaulters should not be seen as criminals. In my view, if someone is defaulted on any loans, then it means that his business has turned bad. I do not see any problem there we have seen the most vibrant economies worldwide have great tolerance risk. In a Silicon Valley, a failed entrepreneur is more appreciated than successful one as he/she has learnt a lesson and would do better in future. For successful businessmen could just be lucky and has not yet learnt any lesson. It is only in india that a sick industry concepts exist. We need to get rid out of it as sick companies hang around for decades. We have to use the assets and manpower in an effective way. I think the new Bankruptcy law will intend to achieve this.
One also has to understand that the scale of business has grown many folds. For example, 15 years ago, Rs1000 crore investment was a big deal, now we consider it big if it is over Rs10,000 crore. This is what entrepreneurship is all about . So, the risks are higher than what they were earlier. We should take these factors into account and develop more tolerance to risks.However, if the company has done anything illegal, be it willful defaults or investments abroad, it should be taken to task.
As far as capacity utilization is concerned, we do not consume at par. For instance, we have the capacity to produce 110 mt of steel but our consumption is only 85 mt, of which 10 mt is imported. What is the logic behind this conceptIJ What does the industry needs from the Government to be more competitive so that there is no dumping from ChinaIJ
I can answer it in a form of one word only, ie; 'Reliance'. The story of Reliance Industries in 1970s or 1980s, the company was investing in massive capacity far more than domestic consumption. But the scale of investments were huge and it could be argued at that time why create excessive capacities. But when the economy grew, demand rose, the capacities get absorbed.
As far as the domestic steel industry is concerned, the Government has also introduced anti-dumping duty to check such menace. You can't target duty to a particular country as per WTO rules. But this is only a short term measure, a temporary measure. Huge capacity exists in China while the demand is somewhat depressed. As China's demand is also depressed, there is a tendency for massive exports of steel from china to india . So the anti dumping duty. But in the long term we have to become competitive, otherwise it is going to make downstream in the industry also uncompetitive.
On Jewellers, should they be taxed or notIJ
I think they should be. If you leave items out of the tax net, all the remaining taxes have to be that much higher. I do not see any basis in the argument that jewellers should not be taxed. It is not an essential commodity. However if there are issues related to harassment from tax officials, same could be addressed. I even argue in favour of taxing agricultural income. Especially the wealthy farmers, I think 99 per cent of farmers do not deserve to be taxed, but remaining 1 per cent who are really wealthy, their agriculture income should come under the tax net for our goal. Taxation is based on profit earning and on the grounds of equity as well. I see in ten years time, jewellers will be taxed, even at higher rate than at present and similarly, in 50 years time the farm income will be taxed as well. I am, therefore, in favour of indirect tax on jewellery and direct tax for agriculture in the country.