Private investment can be boosted by increasing bank credit for capital creation and resolving issues to do with the Insolvency and Bankruptcy Code, Confederation of Indian Industry (CII) President Vikram Kirloskar said in an interview. The upcoming Budget should be aimed at reviving consumer demand as well, he added. Excerpts:
How can private investment be spurred to boost the economy, given that even the last two drivers of growth — government expenditure and consumption expenditure — have started lagging?
It is important to drive private investments as a growth driver, and recent initiatives such as lowering interest rates and revisiting the February 12 circular are in the right direction. A key issue is undertaking banking sector reforms to ensure that capital is available for capacity creation. This will also include lowering government stake in public sector banks. Further, capital stuck in delayed projects or arbitration needs to be unlocked. There are several issues in the Insolvency and Bankruptcy Code that should be taken up for more efficient resolution of distressed assets such as group insolvency, MSME issues, and cross-border insolvency.
CII has recommended expanding investment allowance to capital investments in all sectors such as infrastructure and services. This would greatly boost investments. A key area that we have taken up is a value-chain based approach to unlocking investments. We believe that roadblocks in the entire chain should be taken up holistically so that upstream and downstream products are integrated and seamless. For example, in the construction sector, sand mining to cement to real estate issues would be addressed together. Similarly, the textiles, capital goods, and electronics among many other sectors can benefit from this strategy.
What are the immediate issues that should be addressed in the Budget?
The forthcoming Budget will be an opportunity to establish the government’s reform direction over the next five years. Given the slowdown, the Budget must aim at quick revival of consumer demand and private investments, and continue on the path of public expenditure for infrastructure. The direct tax structure will be crucial to this endeavour. In indirect taxes, CII has suggested maintaining the peak customs duty at 10% rates and addressing anomalies in the duty regime where inputs are subject to higher rates than final goods.
Some key areas that the Budget needs to take up are investments in agriculture and the rural economy, spending on education quality, and widening healthcare with better facilities, especially to address malnutrition. Export credit availability can be enhanced to enable India to benefit from shifting global supply chains. These are long-term requirements for India’s future competitiveness.
On the fiscal deficit, the government should continue on the laudable fiscal rectitude path it has adhered to over the last five years which builds macroeconomic stability.
What is the impact of the removal of GSP benefits by the U.S.? Is it worth it for India to try to get the removal rolled back?
The withdrawal of GSP benefits by the U.S. has impacted some of our small businesses. However, as the Government of India has pointed out, in aggregate terms the impact is not substantial. However, this is also a reminder that we need to build our manufacturing competitiveness in line with our status as an economy with higher per capita income. This can be done by lowering the cost of doing business in areas such as cost of capital, transport and logistics, ease of doing business, taxation and skill development. GSP withdrawal needs to be seen in the larger context of Indo-U.S. trade. All issues between the two countries need addressing. There are expectations from both sides.
Will it be in Indian industry’s favour if India joins the RCEP trade pact?
The RCEP will bring together 16 economies and integrate several of the fastest growing large economies of the region. India cannot remain out of this mega trading arrangement and must be a part of the market access that it will bring. We are aware of our huge trade deficit with China, which Indian industry believes that it [joining RCEP] may further accentuate. We would like this to be addressed appropriately in RCEP negotiations. However, as mentioned earlier, while on the one hand we must address our competitiveness, on the other, we should clearly identify our offensive and defensive interests in the RCEP. This will create the right conditions for us to leverage this FTA. India has also called for taking up services and investments, and these would benefit Indian industry if the right conditions are in place.
Why is GST revenue still lagging behind estimates though the collections are slowly rising? Does Indian industry still have some reservations about GST?
Indian industry sees GST as a game changer for the economy and is keen to make it work for competitiveness in terms of wider tax base and better compliance. The government has done well to address some of the issues raised by various stakeholders and we are certain that this will continue in the further deliberations of the GST Council. From industry, we are looking at a comprehensive tax to include real estate, fuels and alcohol. Further, compression of rates to a standard rate with only a few items in the higher rate category will be beneficial. Some procedural issues for simplification are also required.