The new government led by Prime Minister Mr Narendra Modi is aware of the challenges posed by the recent growth slowdown due to the global as well as domestic issues impacting the economy. FICCI president, Sandip Somany, in an interaction with the FICCI in-house publication Business Digest says that with the NDA government getting a bigger mandate in the Lok Sabha elections, the industry is expecting bold reform measures to overcome the existing challenges, including the rural distress and job-creation, and push the economy to a higher growth trajectory.
Excerpts from the interview
What according to you should be the agenda for the new government?
FICCI, from its side, has submitted a robust agenda for growth to the government comprising measures to address the challenges and improve the business environment. The six key points of the agenda are passage of the pending Bills, announcement of policies (including E-commerce, Industry, Retail and E-pharmacy), simplification of GST, lowering of interest rates, addressing farm distress and creation of an eco-system that promotes employment.
The immediate window to address some of the issues is Budget, that is to come in July. What should be the priorities in the full budget?
The focus of the government in the Budget has to be on spurring investment. Cost of doing business is very high in India and while there is a need for reducing the interest rate by at least 100-150 basis points, the corporate tax rate too must be cut for all the companies to 25% from the current 30%. There is also a need to review the MAT structure, which is too high. Further administrative simplification in the GST and other laws to improve the ease of doing business scenario is also required.
The government also needs to have a reform roadmap. Isn’t it?
Yes. The government during its previous tenure succeeded in bringing in critical reforms, including GST, RERA and IBC. It is time now to not only work towards the required modifications in them, but also usher in the next wave of reforms, especially in the important areas of land, labour and judiciary. While the reforms in land and labour laws are pending, though India has improved its rank by 53 positions in last two years and 65 positions in the last four years in the World Bank’s ease of Doing Business Ranking to reach 77th rank among 190 countries in 2018, its rank in enforcement of the contract is very poor at 163. The Micro, Small and Medium Enterprises (Amendment) Bill is also an important legislation that will redefine the way this critical segment is treated. Similarly, policy measures like the ‘New Industrial Policy and e-commerce policy among others, will also help in improving the business environment in the country.
Liquidity in the financial system is a big concern. How should the government address this?
The liquidity issues with regard to NBFCs are resurfacing. The government needs to work with RBI to take care of the concerns so that the apprehensions in the credit ecosystem subsides quickly. There are steps that are being discussed currently by the finance ministry and RBI to improve the sentiments in the market and we are optimistic that the liquidity concerns can be managed with the help of concerted efforts.
Unless there is investment revival, high growth trajectory can’t be attained. What should the government do here?
This is exactly why the new government needs to plan a robust reform agenda that would not only boost consumer sentiment, but will also create conditions for higher private sector investments and exports. The factor market reforms along with the steps like reduction in interest rate and corporate tax rate will bring down the cost of doing business substantially, which at present is quite high as compared to the countries which are competing with India. These enabling steps spur investment and also boost consumption.
Rural distress is also another area of concern. Though government announced direct income support scheme, this is clearly not enough to handle farmers’ problems.
The Direct Income Support Scheme introduced by the government is a step in the right direction and it needs to be further strengthened. However, the real solution to the rural distress and farmers’ problems lies in the creation of a strong infrastructure to support agriculture, including irrigation and warehousing facilities. Besides, the reforms associated with agricultural marketing also need to be pushed so that farmers’ cost of production and selling is reduced. These reforms, though depend on the coordination with the states and the success of GST can be replicated here. Value added products have to be produced in agriculture. Exports of agri products should be encouraged.
In the area of job creation, a comprehensive strategy is required. What could be the key ingredients of such a strategy?
Creation of adequate and quality jobs is one of the key challenges for the new government. We have about 10-12 million people joining the workforce every year and with a labour force participation rate of about 0.5 to 0.55, the country needs to create about 6-7 million jobs annually. If we account for the backlog of the unemployed, we possibly need to create as many as 8 million jobs annually. We also have to put in place a robust system for capturing the jobs data so that we have an accurate estimate of jobs that are being created industry-wise.
Along with the support of the MSME sector, the government must focus on the new age business like online aggregator services and applications like Ola, Uber, Zomato and Swiggy, and also the start-up domain for creation of more jobs. Also, labour flexibility has to be brought in.
Once a strong backbone for supporting entrepreneurial ventures is in place along with the skilling and re-skilling ecosystem and a flexible hiring framework, pick up in investment will have a multiplier effect on job creation, and that is what the government should target.
Creation of a separate ministry for employment will help coordinate these efforts effectively.