Outlook Business presents its second roundtable on managing growth in 2017. Editor N Mahalakshmi moderated an insightful discussion with CEOs from diverse sectors to gauge their views on the after-effects of demonetisation, their assessment of the Union Budget and growth expectations in the coming fiscal.
It’s been a tumultuous start to the New Year, coming on the back of the surprise demonetisation move at the fag end of 2016. Though the jury is still out on what will be the impact of demonetisation, do you feel the Budget has done enough to spur a recovery?
Novartis India vice-chairman & MD Ranjit Shahani: It was a nuts and bolts Budget; which was good for one or two sectors. But the one that I was most interested in was education and healthcare, because an educated and a healthy society play a crucial role economically. In fact, the manifesto of BJP had stated that they will increase the healthcare budget from 1% of GDP to 2 ½%, which is still minimal compared with 4-6% for other developing countries. But this Budget did not have a roadmap on how to get there. Eradication of leprosy by 2018 and eradication of tuberculosis by 2025 are highly aspirational targets, but there’s no supporting infrastructure to make that happen. The government had spoken of 150,000 wellness centers; 3,000 Jan Aushadhi Stores for generic low price medicines; and recapitalisation of banks — there’s nothing effectively on that.
Otis India president Sebi Joseph: I have a slightly contradictory view. I would say the transformation has already started with demonetisation, which will prove to be beneficial in the long term. The Budget is a second milestone. The finance minister has done a very good job, balancing deficit and growth. I think when the global economy is in a sluggish mode with an all-pervasive protectionist environment, it’s important to give a thrust to create inclusive growth in the country. I think this Budget has at least moved in that direction, be it investment in the rural sector, poverty eradication, electrification of villages, supporting the farmers, infrastructure and affordable housing. I think all of these measures will have a cascading effect on growth and boost employment which, in turn, will create inclusive growth. Not to mention the digital push and transparency on the electoral front by allowing the issuance of electoral bonds. While it may appear like a status quo budget, if you read between the lines, it’s a very intentional budget.
Sunteck Realty chairman Kamal Khetan: It’s clear the Budget has not been able to address all the sectors but as far as infrastructure and real estate are concerned, he’s addressed quite a bit. Infrastructure spending has to increase and the real estate sector has to improve since both these segments provide a lot of employment opportunities directly and indirectly. Giving infrastructure status to affordable housing is a step in the right direction. Though as a company we operate in the luxury segment, but from a broader perspective, the need of the hour for the country is affordable housing. So, the relaxation on tax deduction for affordable housing, the switch from built up area of 30 sq mt in four metros and 60 sq mt of built-up area in other cities to 30 sq mt of carpet area is a good development. Also, the easing of the capital gain rule to encourage more landlords to come forward and contribute their land parcels is a positive. Earlier, landlords were hesitant to sell their land as capital gains was effective from the day of signing a joint developer agreement even though the project would get completed five or seven years later.
Is that a key development?
Khetan: Yes. It encourages people to contribute land. Also, bringing down the capital gain lock-in from three years to two years is a big positive. The fall in interest rate by almost 100 basis points for the housing sector will bring down the EMI cost for the home buyer by at least 8-10%, which amounts to an equivalent reduction in property prices.
Sealed Air MD & VP (Indian subcontinent) Himanshu Jain: We’re in a sector which thrives on derived demand. So, for us, all sectors are important and yet no single sector matters. We work for hospitality, hotels, food & beverage and infra management sectors. If you ask me if I can go to the finance minister and ask for one thing in the Budget, I don’t have any agenda; I don’t have any specific demand. But as a citizen of the country, I think the Budget addresses some basic issues that the country faces. There was a time when we believed that if a Budget is good for a capitalist it is good for everybody, it’ll trickle down slowly. And this is changing globally, whether it’s Trump politics or the talk around more inclusive growth. The government is already helping the poor by increasing the outlay under MNREGA so that demand doesn’t go down too much. Affordable housing has got a boost instead of luxury housing, which means a lot of derived demand will come from the construction sector which is a source of huge unorganised unemployment and the one sector that was impacted by demonetisation the most. So, it’s a good budget, the government didn’t do anything stupid. It was not an election-oriented budget.
Shahani: Yes, true there were no giveaways. But what is being done to address job creation? There are one and a half million people entering the job market every month; there are 20 million babies being born in India. Now, whatever fillip is being given, we have to quantify that how many jobs are being added. So, that’s going to be a big issue and, I think, in terms of growth orientation and job creation, there’s a huge gap. I think this was recognised long time ago but I don’t see any visible action on that and that’s why I’m saying some of the key things were not quantified.
Sebi, you spoke of demonetisation being a milestone. What good do you really see coming out of it?
Joseph: In the short term, you will see the pain, especially in the rural area. That’s why some of the measures in the Budget can help address the pain. I’m not being idealistic. While we may still go through some more pain and this year might prove to be a disruptive one with GST too coming, I believe demonetisation is going to benefit us in the long run.
What is the tangible benefit the economy gets out of this whole exercise?
Jain: My view is that the finance minister has factored in higher tax collection in the Budget. From my own family there are people who are into trading, who have transformed the way they do business. Earlier, it used to be all cash and now 80% is through a wallet or credit card. You can’t quantify the taxes that will come in. But for a country which has such a low tax collection, the move will go a long way in improving collections over time. I think the FM is trying to expand the resource base and demonetisation is just a cog in that wheel.
Are we going to see a wider tax base leading to higher mop-up?
Shahani: I think the authorities now have a database which they can mine much more creatively rather than just squeezing the poor salaried class. So, now they will slice and dice the data in such a manner to target only the big evaders. The reason why the amount collected is not announced is because I don’t think the amount is very large, otherwise it would have been announced immediately. But it is a cultural shift which has to take place and we need to learn from countries which are highly digitalised and card-oriented.
Jain: In Philippines you go to any trader they accept credit cards. Here even well known shops will say I take only cash or doctors say I take only cash.
But the money has to be transferred from a bank account. So, are they even open to the idea of subjecting themselves to scrutiny?
Jain: I don’t think there’s a problem. My domestic help is happy about her salary being wired to her bank account or being issued a cheque. I don’t think they are bothered because they actually don’t make so much money that they will be taxed heavily. The problem is with those big traders who evade a lot more. Small traders, small hawkers, small Udupi owners don’t have to worry about heavy taxation as they don’t generate that kind of revenues.
This is the first of a two-part series. You can read part two here.