Good Monsoon Will Spur Demand: Forbes
Huge investments announced by the government in rural sector, roads and railways will kick-start the investment cycle that will lead to increased demand, said the Confederation of Indian Industry’s (CII) new president Naushad Forbes. In an interview with ET’s Rajat Arora, Forbes said he expects a GDP growth in the range of 8% in 2016-17. Edited excerpts:
Are you happy with the pace of reforms under the NDA government? Goods and Services Tax (GST) — yes, it was originally introduced by the Congress, but they never actually introduced the bill in Parliament. The current NDA government introduced it and got it passed in the Lok Sabha. Now, it has been pending in Rajya Sabha because of political reasons.
The objections to GST are only political. If the political will is there, I’m sure it will be sorted out. This government has overhauled the Apprenticeship Act. The law changed a year and a half ago but the notifications are still pending from some states. If states implement them faster, then companies can take advantage of the situation.
Then, there’s the bankruptcy reform that is with the Parliament, which is expected to be cleared soon — it will improve India’s ranking on the ease of doing index. Changes have been made to the Arbitration Act and to the Companies Act. We also see real eagerness on the part of different ministries to focus and deliver on the ground.
In the road sector, projects are being rolled out really fast. We have a construction equipment committee with CII. The committee says that there has been a huge increase in demand of road construction equipment. That means there has been an increase in rolling out of road projects. Railway contracts are being awarded and so are port expansion projects. So, core infrastructure sector is showing strong signs. Along with this, the Make in India and Start Up India initiatives are also picking up.
Even after all these reforms, corporate investment is subdued... There are issues of sentiment that influence investment. What drives sentiment is demand. Companies have been struggling with subdued demand for long. We have improved our efficiency in terms of production, but there’s no demand to meet that production. So, there’s a huge capacity that’s lying unutilised. Only when this capacity is used, we’ll be able to see fresh investments from corporates. Rural demand has been affected
badly due to a poor monsoon.
What ways you would suggest to boost demand? I think the measures announced in the budget, including increased investment in road building programme, and in the rural sector including irrigation would drive demand. Increase in FDI will also show good results soon. I think if we have a good monsoon this year, we’ll see a spur in demand. That will feed into agricultural growth that would lead to higher rural income. In many commodities, half the demand comes from rural areas. So, it will show in industrial output.
Do you think the government needs to do more to bring in investment? Non-legislative reforms should be accelerated. Some of these include expansion of the JAM trinity of Jan Dhan Yojana, Aadhaar, grandfathering and sunset clauses for new government schemes, and continued action on infrastructure investments. There is also a need to set up a National Asset Management company. They also need to clarify the roadmap to bring down the corporate tax and easing out some of the incentives. Also, the cases of wilful defaulters need to be looked at legally.
This government has already taken several bold steps. Let’s take labour reforms — this government had the courage to pick up the topic in 20 years. Rajasthan has moved on labour reforms, and so have Andhra Pradesh, Gujarat, Madhya Pradesh and even West Bengal. What I look forward to in the current year is more states joining the bandwagon on labour reforms.
The bankruptcy reform should happen as the Opposition is also supportive. It’s replacing an ancient legislation. The budget had a very interesting announcement to run a pilot programme for Direct Benefit Transfer of fertiliser subsidy. We would like to see it rolling out soon because fertiliser subsidy is huge and any reform in this area would be very productive. It will stop leakages.
The quick passage of the constitutional amendment to introduce GST would make India a single market and reduce transaction costs. It could lead to a GDP growth of 1.5%.
CII’s estimate is higher than the RBI’s forecast of 7.6% growth in the current fiscal. We are forecasting GDP growth in the range of 8% in 2016-17. Strong macroeconomic fundamentals, increased infrastructure investment by the government, a good monsoon and downward trend in interest rates can lead to that growth. We are very optimistic and are also seeing signs of a recovery in the rural economy.