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Demonetisation and goods and services tax (GST) in India, and external factors such as the Donald Trump presidency and Brexit will change the landscape in which companies operate this year, according to Pankaj Patel, the new president of industry lobby Federation of Indian Chambers of Commerce and Industry or Ficci.
Edited excerpts from an interview:
What is your assessment of demonetisation?
Why it happened and whether it was right or wrong is all over now. I think a few things need to be done now. First is of course moving towards the cashless economy. So more digital payment and more transactions is one thing that should happen and I think some of the impediment against it in terms of additional cost involved... taxes should ease. The other thing is because of so much money coming in, banks have responded and reduced the interest rates by 1 percentage point. There has never been a 1% cut. I believe over a period interest rates should ease further.
The third thing is that some sectors, which were not in mainstream, which were unorganized, will now become organized .
The number of taxpayers will increase and so will the government’s revenues, and, eventually, its spending. There should be increase in investments. There should be a further easing of tax rates. We need phase two of ease of doing business, be it tax, licenses or regulations.
How easy do you think going cashless will be for Indian trade?
It takes time to change anybody’s habit. It will require sustainable effort in terms of educating people, pushing them and creating some kind of incentive for them to move towards it.
How would you rate 2016, from the point of view of the Indian economy and businesses and what do you think lies ahead in 2017?
So in 2016, we could get to a close to 7% growth and that was good. By and large industry has done well. Going forward we need to get away from the short-term impact of demonetisation. We have to undo it which means there has to be some more effort towards increasing demand in 2017. So that we can regain whatever we have lost.
The Brexit vote happened in 2016 but Brexit has not yet happened; similarly, Donald Trump has been elected but what he will do, we will get to know now. It is difficult to say what kind of impact these will have. Brexit could be positive for India because UK might have to partner with other markets.
When do you see things returning to normal after demonetisation?
I think things are easing out already. Many of the sectors are normalizing. I believe some more banking reach in rural areas is essential. I believe that by the end of March, we should see normal growth, or even better.
What are your expectations from the goods and services tax?
GST needs to happen, there is no other way. Meetings (of the GST coumcil) are happening, which is good. The impact of GST will be seen after a year of implementation. One of the positives will be a level playing field. Another will be higher tax revenues.