At a time when India is looking to revive its economic growth while projecting its march towards a 5 trillion-dollar economy by 2025, the industry has set out its agenda for revival of the economy’s slowdown.
D K Aggarwal, CMD of SMC Investments and Advisors Limited, recently took over as president of PHD Chamber of Commerce and Industry (PHDCCI) with a vision to engage with industry stalwarts and leaders to foster an ecosystem of innovation and growth. He is also a fellow member of the Institute of Chartered Accountants of India (ICAI) with more than 20 years of experience.
Aggarwal said in an interview with ASHA RAMACHANDRAN that the Chamber will strive to build a consensus between industry and policy, will take up issues of all industries and work for attaining the nation’s goal of becoming a 5 trillion-dollar economy.
Q: What ails India’s economic growth which has seen a steady downward slide, particularly in the current fiscal?
A: Over the last one-and-a-half years, one of the biggest issues is banking and shadow banking. Since they have huge NPAs (non-performing assets), banks have stopped giving funds. NBFCs (nonbanking financial companies) are the last resort for MSMEs and even they were in trouble.
So, funding to consumer durables, like consumer loans and home loans, got affected. This in turn affected the construction industry, automobile industry and real estate. This led to demand coming down in all these sectors. In the construction sector, which is the second largest employer, a lot of unemployment was created. In the automobile sector, there were job cuts of more than one lakh people.
The combined effect was that there was less demand. Then there was less availability of liquidity for consumer lending and home finance. In the rural sector also, there was acute distress. Only government was spending and that was the silver lining. This is apart from the global factors ~ the US-China trade war and geopolitical factors like Iran and Turkey. All this resulted in the growth slowing down ~ it came down to 4.5 per cent in the last quarter. Now, as per the Budget, growth is expected to be around 5 per cent.
The government has taken a number of measures prior and post Budget, which should be able to generate a lot of demand. The alternative system of personal taxation should put around Rs 40,000-50,000 crore of more disposable income in the hands of individuals. Reduction of corporate tax prior to Budget, along with dividend distribution tax (DDT) which has been done away with in the Budget, should result in Rs 1.5-2 lakh crore availability of funds with corporates.
This money should partly go into reduction of product prices to generate more demand or paying their bank loans or in expansion/investment to create more capacity. Either way, this will benefit the economy.
Q: What sectors,in your opinion, should PHDCCI focus on, in India’s stride towards a 5-trillion-dollar economy?
A: If India is to achieve a 5-trilliondollar economy by 2024-25, plans of government to spend Rs 103 lakh crore in infrastructure would be the foundation. The investment will give more money in the hands of people, spend in rural infrastructure will boost rural demand and this will also help Make in India and increase competitiveness of our industry when it comes to exports.
This Budget has given tax benefits to sovereign wealth funds if they invest in infrastructure projects in India, up to 2025. This Budget provision, along with corporate tax reduction to 22 per cent and 15 per cent for new units has made India a hot destination for FDI (foreign direct investment) and FPI (foreign portfolio investment). Even foreign companies would benefit substantially with the provision of DDT being done away with as earlier the tax paid on dividend distribution was not set off against their tax liability in their jurisdiction.
This straightaway is a benefit of 20 per cent. PHDCCI would focus on working on exports as we believe that if India is to achieve 5-trillion-dollar economy, at least 1 trillion dollars will have to be India’s exports. The other sector is MSME (micro, small and medium enterprises). We believe growth should be inclusive and if the benefit of growth is not available to the lowest rung of the pyramid, it will not work. MSME is the real growth engine for inclusive growth of the country.
They need to be given a lot of boost. A good 75 per cent of our members are from the MSME sector. Defence is another sector where we see huge potential to Make in India and make India a manufacturing hub for defence and indigenise defence production. Agriculture and food processing need attention. To double farmers’ income by 2022 and to improve condition of farmers and agriculture, a 16-point Action Programme is envisaged in the Budget.
This shows the seriousness of the government. PHDCCI would also like to contribute to it, particularly in the area of food processing as well as logistics and rural infrastructure required for the same. Infrastructure is one sector that PHDCCI would like to work in ~ to see that projects are implemented. Spending on (infrastructure for) healthcare and education should take priority over other sectors. These are areas that make best use of our demographic dividend and women’s empowerment.
Q: While Indian industry has done much to maintain its growth rate, a lot more needs to be done. How do we achieve this?
A: One of the concerns of Indian industry even now is cost of capital and availability of finances. Though RBI had reduced Repo rate by 135 basis points, since last year (2019), however, only 45 basis points have been passed on by banks to borrowers. The real interest rates in India are very high and there is a need to gradually reduce interest rates by at least 200 basis points.
Also, we need institutions that finance for long term as we have seen asset-liability mismatch issue arise because of the bank-funded infrastructure projects in the absence of financial institutions with long-term funding.
Q: What is the impact of the ongoing Coronavirus epidemic on the Indian economy, given that our industry imports heavily from China?
A: Since the outbreak of Coronavirus, particularly from January, the impact is being felt in India though it is much less as compared to the world economy. Our pharma and electronics sectors, where we heavily import raw materials, seems to be impacted the most. Now, the stocks with Indian manufacturers as well as Chinese exporters are running out and if this epidemic continues for another two-three months, it can affect our pharma as well as electronics and mobile manufacturing industries badly.
Government has been very proactive and interacted with the industry recently to understand and take corrective actions and we believe that though this is an adverse situation, it will provide alternative supply chain platforms and also may result in an opportunity for making in India some of the products or raw materials which are currently imported from China. This could prove to be a blessing in disguise.
Q: What are the areas that need convergence between industry and government?
A: Ease of doing business is a major area. Though our ranking has come down to 63, it needs to percolate down to district levels. Secondly, judicial reforms and contract enforceability are big issues now. That needs to be prioritized.