‘Corporate tax cut is the single biggest reform in the last two decades’3 min read . Updated: 10 Oct 2019, 11:28 PM IST
Assocham president B .K Goenka says the corporate tax cut would be a great catalyst to the Make in India programme for attracting foreign investment
NEW DELHI : B .K Goenka occupies a hot seat. As President of Assocham, he has the mandate of leading India’s oldest industry body to a position where it is seen as the thought-leader and champion of the corporate sector. It’s a 100-year-old body tied to its roots, and the challenge is to deal with the issues facing its nearly 4.5 lakh members drawn from various state-level industry bodies. With the experience of running the $3 billion Welspun Group and turning it into a successful global entity, Goenka is no stranger to challenges. Edited excerpts from an interview:
The recent cut in corporate tax rate and other economic sops have brought cheer to the industry. Is this enough?
The corporate tax cut is the single biggest reform in the last two decades and is no small achievement. Yes, there would be a time lag, but the impact would be huge. One should understand that when the effective rate of corporate tax is slashed by close to 10 percentage points in one go to 25.17%, it is a huge cut. For new manufacturing companies, this would be 17.01%. This is hugely competitive as compared to India’s closest manufacturing rivals like Vietnam, Indonesia and Bangladesh. I believe it would be a great catalyst to the Make in India programme for attracting foreign investment. The timing is also perfect as this comes at a time when key American companies are caught in a trade war with China and are looking at alternative global manufacturing bases.
So what are your priorities now?
Currently, most companies are operating at 75-76% capacity amidst slow consumer demand. The rate cut is bound to raise the margins of manufacturers and they, in turn, can pass on some of the benefits to the consumer, like Maruti has done recently by reducing prices over and above discounts. With consumer demand taken care of and investment climate destined to improve, the foundation is set. What we need now is to work on our labour and land reforms. Land is a state issue too and local politics in land acquisitions is a bottleneck. In case of labour, we do not believe in hire-and-fire policies but there has to be flexibility and relaxation of rules in case of workers employed with seasonal/export-oriented units.
When do you expect the upswing in the economy coming in?
Even though the government is faced with a difficult fiscal position, we expect tax collections to pick up in the second half of the current fiscal. Besides, with a marked improvement in the stock market, the government should aggressively go for raising money through disinvestment. In fact, the finance minister has already indicated about it.
This time around, as reports suggest, we hope that the government does not restrict itself to divesting its minority stakes in a few blue-chip companies. Wherever possible, full ownership and strategic sale should be executed. Besides, for big -ticket and crucial disinvestment programme like Air India sale, things should move in a time-bound manner. All options, including sale of immovable assets, should be explored to raise money for economic revival. There are several PSU firms which are sitting on idle land even in the heart of big cities. That resource should be unlocked and used to uplift housing and real estate sector.
Once we see an improvement in the government’s fiscal position, we expect rate cuts in the personal income tax as well, leaving more money in the hands of consumers. And then, as growth picks up and the momentum gathers pace, along with pick up in tax collections, further rationalisation in GST rates would be a real possibility.
How much growth in GDP do you foresee in future?
There is a lead and lag effect of the various growth measures but things should roll and by end of Q3, we should see a GDP growth rate of over 6%. One should understand that the sentiment is now positive and if this perception continues, then we may end FY20 with a growth of 7%.
Coming to Assocham, where do you see the oldest industry body going from here?
We are a 100-year old body and all the biggest state-level chambers are our members. Today we have over 4.5 lakh members and most of them are from the MSME sector and we hope to act as a bridge between our members and the policymakers. As an industry body, we have to change with times and for this we need a crack team at the top to plan and execute decisions—which I have done by bringing new faces, besides reorganizing our internal divisions for better direction.