New govt will be more careful before taking any disruptive decisions: CII President
With lenders tightening their purse strings and a looming threat of a slowdown in the economy, the Modi 2.0 government will have its task cut out. But according to newlyappointed CII President, Vikram Kirloskar, the government will be a bit more cautious this time as it sets out to address multiple structural issues. Kirloskar, who took charge in April, spoke to BusinessLine about the priorities of the CII and issues that need to be addressed by the
What are your main priorities for the CII?
OOur main priority is the competitiveness of the Indian industry — How do we improve quality, cost and delivery? That is competitiveness for us. This is besides safety, environment and sustainability.
The Prime Minister has mentioned ‘Sabka vishwas' — but, how do we increase the trust between Indian industry and government, and society? This means better governance, better working on our side. We have done a lot of it already at the CII. Better trust will mean lower regulation.
Environment, energy security, employment and the agricultural and urban connect will also be our priority. We want the farmer to be rich.
Do you think the new government has leg room to take disruptive measures like demonetisation and GST?
I think they have the will, but they will be more careful before taking any disruptive decisions. I think they will study it a little more.
I prefer a long-term policy with an end objective. Do you want energy security or carbon reduction, growth of farmers income, stick to that and then do whatever is required to achieve it.
While the growth has been respectable, there have been accusations of a rise in unemployment in the country...
Certainly at the top end of the pyramid, like a sophisticated auto industry, there has been a huge increase in productivity along with skill. Every time we increase skill at the top of the pyramid, productivity increases phenomenally. It is certainly creating a huge amount of jobs which is coming out in the enterprise data. I think the industries which were not there. Individual entrepreneurship industries, like a personal trainer, which have increased manifold were not there before. For which there is no statistic available, past or new.
In some cities like Bengaluru, there are people looking for jobs but its not a desperate situation. When you want to hire a person, then also you cannot get someone. In parts of the country it could be reverse, there are so many people looking for jobs you don't know what to do, and different parts of the country could be in different situations.
It's hard to tell from the numbers but it is of number one concern. There is going to be jobless growth at the high tech level as productivity increases. But definitely at the lower level, I think this will pull the employment up.
Do you think there is a skill mismatch which leads to this diversion?
There is always a skill mismatch, not only now, but from the first industrial revolution. Because technologies change fast, people's requirements change fast and you are required to keep upgrading skills. So I know in the auto business, everyone is continuously improving the skills... otherwise you cannot improve productivity.
The supply chain for automation is also huge, whether it is machinery, software, maintenance, all that is a different supply chain that did not exist before.
How should we look at the recent numbers of the auto sector from a macro perspective?
We are not sure, but the metro increase across the country is showing a structural change in the requirement of cars or vehicles, along with shared mobility. I think there could be an effect of that. That’s one side of it; maybe it will take us another six to eight months to figure out what really is happening. The second one is a sentiment, cost of finance and the NBFC crisis.
I think these are the issues that are controlling the market.
One idea we had about the structural part. We started seeing that in private car ownerships, they are driving less. We see the time between services (for cars) has increased. So, somehow we get a feeling that people are driving less but I don’t have enough data to say this is it.
What steps should the government take to boost production? Is putting money in the hands of people the answer?
If something is overtaxed it should be brought down. We require investment. There is no equity growth, that’s why investment is less. Our economy is running on debt, we should encourage equity.
Tax less on equity. Equity is overtaxed. Dividend is taxed after profit after tax and capital gains tax is there, so you are really taxing equity. To reach higher growth rates, we need equity formation and asset formation. Our request is not to do anything which will affect the sentiment for asset formation. Our recommendation is first to remove the tax on dividend and tax on capital gains.
On corporate tax, we are suggesting not a revenue reduction, but a reduction of tax and removal of exemptions. It’s just simplifying the tax code. Our simulations at CII are showing a roughly 18 per cent and zero exemption is giving you a revenue neutral tax.
Are you satisfied with the current rates for borrowing?
Compared to the inflation, the real interest rates are high. The RBI has been bringing it down correctly. (But the banks are not transmitting these interest rates) because the deposit rates are high. Basically some of the bankers are saying that there are some government schemes where the deposit rate is 8.5 per cent. So they are competing with that. So if you are competing with that, you are giving deposits in a region where interest rates are very high as well. So passing on the RBI interest rate is not as easy as it looks because they don’t get money at those rates.
They can lend what they get as deposit. But inflation is at a historic low for such a long time so the real interest rate is high. That could also be a reason for the auto industry issues.
Our recommendation is first to remove the tax on dividend and tax on capital gains.