CII president pitches for substantial cut in interest rates

The CII chief is optimistic about the new government's economic measures.

Ajay S Shriram, the Confederation of Indian Industry president, downplays reports of India Inc disillusionment with the Narendra Modi government.

He tells Business Standard the ball is now in the Reserve Bank of India’s court to lift up demand.

Edited excerpts:

We are talking as manufacturing output is foun d to have plunged 7.6 per cent in October. Are you disillusioned with the Narendra Modi government, which completed six months in office in November?

Not at all. I don’t know why there is a feeling that in six months, measures have not been taken.

The one question that baffles me is that a lot of people say big-bang reforms have not happened.

What is big-bang?

Our view in the chamber is very clear -- we can’t remember any government taking so many steps and initiatives in the first six months as this government has.

Look at any front -- industry, social, agriculture -- and they have taken steps.

You look at diesel de-control, foreign direct investment liberalisation, Pradhan Mantri Jan Dhan Yojana.

How can one say nothing has happened?

There were reports that industrialists expressed disillusionment with the Modi government at a recent CII meeting you had chaired. What exactly happened?

The meeting was very positive.

Everyone generally felt there was no industry that had not been affected positively by what happened in the past six months.

The sense of positivity came from the actions taken, as well as the leadership.

We have a prime minister who was a successful chief minister.

Decision-making is fast.

So, a couple of people raising the issue that something more is to be done does not mean that measures are not being taken.

The kind of reform measures, say on the labour front, that CII has been suggesting and the ones initiated by the Rajasthan government have not come from the Centre.

You have a democracy. In the past 60 years, what labour reforms have happened? 

At least, this is happening now.

They are moving ahead to make changes in a sensitive area.

They have proposed changes in three Acts, including the Apprenticeship Act.

Everyone knows it can't happen in a day because of the number of people involved, their expectations.

We feel it is better to move things gradually and get things done, than do something radically and then go back.

The recent data on manufacturing did not reflect that government policies are in the right direction. Do you think it is an aberration or has demand has crashed so much that even the festival season could not boost it?

The past few years have been very tough. From sub-five per cent economic growth, we have come to 5.5 per cent in the first half of the current financial year.

Second, what we need to fix is demand-side growth.

It is here that a good interest rate cut by RBI, especially when inflation is under control and the government has resolved to rein in the fiscal deficit, will give a push to demand and a chain reaction to move things faster.

Do you think only a 25 to 50-basis-point cut in the policy rate would make such a big difference?

We should have a one-percentage-point cut in interest rates.

We should send a message now — our deficit is under control, inflation is under control.

Let us kick-start the economy.

What about the upside risks to inflation that RBI is worried about?

Risks are always there.

We cannot run the economy by sitting back and not setting things right. One has to move ahead and then take corrective steps when risks emerge.

At this point, what reform measures are you looking up to the government to take?

We have been suggesting to get implementation of pending projects on the ground.

Besides, the government should look at amendments to the Land Acquisition Act. It takes at least 56 months to acquire land, in the current scheme of things.

In his recent lecture, RBI governor Raghuram Rajan suggested that the ‘Make in India’ programme should be largely ‘Make for India’ and not include only manufacturing. Your take?

When you make in India, you make for all markets, domestic and international.

We support the Make in India proposal for all markets.

We support economic activities across the board.

There are about 25 programmes in Make in India; only 12 or 13 of these are in manufacturing. Programmes such as leisure, wellness, tourism are all services.

CII has time and again talked of the GST (national goods and services tax) as a measure which would push up economic growth. A sub-committee of the empowered committee of state finance ministers came out with a combined GST rate — Centre's and states' -- at around 27 per cent. Is this what you’d suggested?

We feel whatever figure they come out is okay; they are yet to give a go-ahead to these rates.

At least, a new system will start on a clean slate.

This is really good for the economy.

The important point of a GST coming is that we will become a common market.

With a GST, the base will increase, the revenue will increase, transaction costs will come down byfour to six per cent. We are not worried on the rate front.

CII has been demanding the exempting of Special Economic Zones from the Minimum Alternate Tax. The RBI governor recently talked against this kind of export-led growth.

As long as we are continuing with different types of taxes, subsidies and allowances, we feel having exemptions to SEZs from MAT is a good idea.

When there is a total overhaul  of the tax system in general, then revisit the whole thing. Then, it's okay.

That was the whole idea of the Direct Taxes Code.

It’s not a good thing to leave all other issues on DTC and stick to only this.

We had suggested some changes in DTC.

We stand for a simple tax structure, without exemptions and low rates.

This was the concept in the first DTC but it went through so many alterations after that. Eventually, what came out was neither simple nor was it bringing down the tax rates.

Since the (Union) Budget is coming, general anti-avoidance rules, for taxes originally in DTC, is proposed to be implemented from the next financial year. What is your suggestion to the government?

We feel GAAR should be deferred for some time, until our whole system becomes more transparent, easier, our transparency from the information technology network the government is putting in is more established.

1st Image: Prime Minister Narendra Modi tries to play a soprano recorder before school children. Photograph: Issei Kato /Reuters; 2nd Image: CII president Ajay S Shriram; Photograph: Kind courtesy, CII