New govt will be more care­ful be­fore tak­ing any dis­rup­tive de­ci­sions: CII Pres­i­dent

The Hindu Business Line - - NEWS - TWESH MISHRA

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

Cen­tre. Ex­cerpts:

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.

VIKRAM KIR­LOSKAR, YZ

Our rec­om­men­da­tion is first to re­move the tax on div­i­dend and tax on cap­i­tal gains.

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