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Stimulus rollback will be disastrous

Stimulus rollback will be disastrous
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First Published: Tue, Feb 16 2010. 09 48 PM IST

Updated: Tue, Feb 16 2010. 09 48 PM IST
Bangalore: Despite India’s improving economic performance, the Budget should not roll back the stimulus package of excise duty cuts and export incentives that had been doled out to help firms meet the global downturn. The Budget, to be delivered on 26 February, should also promote reforms in labour, land, power and retail, and return the focus on divestment.
These were some of the suggestions offered by a panel of eminent industry chiefs on the Bangalore leg of Mint’s Bugdet Agenda 2010, a four-city, pre-Budget panel discussion.
The speakers debating the topic “Corporate India: Time for Big Bang Reforms” included G.V. Prasad, vice-chairman and chief executive, Dr Reddy’s Laboratories Ltd; Subroto Bagchi, vice-chairman, MindTree Ltd; G.R. Gopinath, chairman and managing director, Deccan Cargo and Express Logistics Pvt. Ltd; Kiran Mazumdar-Shaw, chairman and managing director, Biocon Ltd; J.M. Garg, chairman and managing director, Corporation Bank Ltd; Harish Bhat, chief operating officer (watches), Titan Industries Ltd; and Rajendra J. Hinduja, managing director, Gokaldas Exports Ltd.
Mint’s deputy managing editor Tamal Bandyopadhyay moderated the discussion. He started off by asking the panellists if the time was ripe to withdraw the stimulus package, following healthy profits in the December quarter for many companies. Edited excerpts:
Hinduja: Some sectors, like the one, I come from, textile, even gems and jewellery, pharma, have not done well. Stimulus can be rolled back for some sectors and (be kept) on for others. Textile is the second largest employer after agriculture, employing three crore workmen.
Garg: Corporate India has done well for (the past) two quarters. Confidence levels had gone down to rock bottom and credit growth had slowed from 30% to 13%. Any stimulus cannot be taken off suddenly and has to be done step by step. We cannot forget much of the growth is led by developed countries. As and when those countries remove stimulus, we can follow.
Bhat: It is too premature to roll back the stimulus for another six-nine months. The industrial production growth figures are from a low base. Cumulative growth month-on-month is only 7-8%. Secondly, consumer optimism is a mixed picture. On consumer durables, the optimism is not growing month-on-month, but it has grown in the case of two-wheelers and four-wheelers. Thirdly, in the world around us, growth is still fragile.
Bagchi: The government’s job is development. It’s time it admitted that one-fourth of the country is beyond governance. Rs65,000 crore has gone into education cess, but when I travel to the innards of our country, the only things I see in terms of change are roads and the cellphone. There is no change in schools.
On one side, you can be bulldozed by a monolithic entity, China, and on the other side is the US with its clarion call of protectionism; there is no room for rollback of stimulus.
Gopinath: There is no room for rollback of stimulus. What is worrying is that corporate India is doing well and the other India is not. If Rahul Bajaj has to buy a plane, he has to sell millions of motorcycles to ordinary people.
I’m afraid it’s taken us 50 years to realize that we need infrastructure for development. Out of every Re1 spent on infrastructure, 80 paise goes to various pockets. Of course, our politics is in the pits; there’s a whole ecosystem that takes it away.
Prasad: The government spends should be restricted to certain sectors. There are three areas important for long-term growth. Healthcare is important. It receives only 0.9% of GDP (gross domestic product), among the lowest in the world (although) government has invested a lot of money and some good progress has been seen in the National Rural Health Mission and immunization. Secondly, in education, having a few IITs (Indian Institutes of Technology) is not enough. Thirdly, the future is a low-carbon environment. We must invest in innovation.
Mazumdar-Shaw: Talk about any rollback is premature. This 7-8% growth is not enough, we need double-digit growth for a long time for every Indian to be able to participate in the growth story. Invest in healthcare. Small and medium industry and entrepreneurs are very important and will help address growth. We are challenged by unemployed, underfed people; we need to give them jobs. Education, training and technology can create those jobs. I want to see increased stimulus to sectors which are not delivering enough.
On reforms
Garg: An article written by former (Reserve Bank of India) governor Y.V. Reddy in 2001 on financial sector reforms is still true because nothing has happened. It has been stagnant. There’s no point talking about banking and insurance reforms because we are being hypocrites.
Hinduja: For example, why should labour reforms be limited to a budget? Textile is a labour-intensive sector. There is no will or grit to change labour laws in the country. For example, if a labourer works overtime, he gets more pay. Even the unions have been fighting for it. But the law does not permit it.
Bagchi: Disinvestment in public sector is required. Public sector is the playground of vested interests.
Mazumdar-Shaw: One needs to be bold to disinvest certain public sectors. Do we need to waste so much money in Air India? Also, why are we being so xenophobic about permitting FDI (foreign direct investment) in the retail sector? We need power sector reforms if we are talking of growth. I would like to see more investment in research, particularly in the risk-related kind of growth, and banking and insurance sector reforms.
Prasad: We need to do away with administered prices. I pay the same price for sugar as my domestic help does. The same goes for LPG (cooking gas) and fuel. The government should subsidize only for the poor. Drug pricing is also controlled. It should be based on cost of treatment rather than on cost of production. Land reforms also need to be looked at or else you will never get any project under way.
Bhat: Reform in organized retail is needed. Secondly, divestment by the government to raise funds and, thirdly, wipe out a lot of unnecessary subsidies like the petrol subsidy.
Gopinath: Good reforms along with technology can bring down corruption. In the logistics sector, make India into one free trade zone, dismantle octroi and eliminate subsidies. Finally, what is needed is the political will to put in the money in rural roads and rural power. That will generate jobs.
If I were finance minister
Hinduja: If I were FM (finance minister), I would open up retail to trigger big growth. Secondly, I would hold on to the stimulus package and, thirdly, I wouldn’t tinker with any taxes now, corporate or individual.
Bhat: I would protect India’s growth story and would be very careful about rolling back any stimulus. I would want reforms in the retail and labour sectors. I would quote from Amartya Sen rather than Rabindranath Tagore.
Bagchi: I would substantially expand the tax base and also create a divestment plan. I would terminate this annual budget process and stop wasting everybody’s time.
Garg: I would adopt a balanced approach because India is such a large country to manage. While I would let the stimulus package continue for some time, I’d increase the tax base and make more people pay taxes. I would also target fiscal deficit.
Gopinath: I would look at a turnaround in the labour sector and financial sector reforms. Eliminate subsidies and invest in rural infrastructure.
Mazumdar-Shaw: I would have a powerful strategy which would focus on inclusive growth. I would pay increased attention on small and medium enterprises, research and education. I would also look at all this through disinvestment of public sector through efficient financial management.
Prasad: I would look at the team and allocate money. We have a refreshing change in the education minister, and I would give more money to him. The next would be to invest on the environment, to move to a low-carbon future.
poornima.m@livemint.com
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First Published: Tue, Feb 16 2010. 09 48 PM IST
More Topics: Budget 2010 | Stimulus | Economy | Excise duty | Tax |