Calling for the government to make sure that India recovered to last year’s growth levels, Naushad Forbes, co-chairman Forbes Marshall told Sandeep Singh that immediate steps should be directed towards massive infrastructure spending and putting cash in the hands of people for spending. Stating that there is a disconnect between what is being publicly said and what needs to be done immediately in the short run, he said that if you publicly deny that there is a big problem, you are removing the scope for significant action in the immediate term. Edited excerpts:
Did the magnitude of GDP contraction come as a surprise to you?
No, it was expected. I would say that because in April everything came to a complete halt. In fact, some of it is a self-inflicted wound because we shut down more than we needed. We shouldn’t have stopped logistics and we needn’t have stopped all manufacturing as we did in April. Those were mistakes that took the better part of two months to then unravel. So there was damage in April and May. Now we are over that part, the first step now is to make sure that we recover to last year’s level.
What should be the way forward to come out of the grave situation that we are in?
My recommendation would be that if we do something that is immediate, it should be aimed at something that puts cash in the hands of people who will spend it and not save it and that will sustain employment levels. That’s a very useful use of any government financing and I think there is a need as industry is very much focussed on reducing cost.
Second is massive infrastructure investment. Yes, it will take longer to show up in economic activity but all of that is valuable investment in the long run. If people see contracts happening, and contractors in turn start placing orders in industries system, even if the money is not yet flowing in short run, it will be a huge confidence booster. It could turn the whole gear and companies will think that in six months time you are going to need capacity to deliver to all these contracts that are starting to flow, so they will hang on to their people instead of going for cost reduction. I think we should use this crisis as a way to build the infrastructure deficit we have in the country.
Isn’t there a concern on funding the same?
With stock markets being at the levels they are, the government should be privatising in a massive manner, including the public sector banks. The starting point should be to come to 49 per cent, because the moment you do that, the share value will shoot up and then as you need, keep selling more at higher valuations.
If the government is borrowing to invest in infrastructure assets, I think it is much more reasonable and sensible than borrowing to spend in terms of tax cuts that will vanish and not show any long-term benefits.
There are demands from industry for GST rate cuts to revive demand. How do you see that?
I am not convinced that things like GST cut are a good way of stimulating demand. Many of my colleagues in the industry are, but I am not convinced. While I don’t know how much tax stimulates demand, it certainly seems to me that it reduces revenue much more than it stimulates demand. In fact, if you use the same amount in a different way in a different place, maybe that can stimulate more demand.
There have been several rounds of discussion between industry and people at the top in the government. Have they been productive or do you think there are some gaps in industry’s communication and government’s action?
I think, any personal communication with people at the highest levels of government reflects the deep concern that the government feels about the current situation. Any larger interaction with the government tends to be focussed on how everything is fine in terms of our long run prospects and that is not a good message to send. So there is a disconnect between what is being publicly said and what needs to be done immediately in the short run. If you publicly deny that there is a big problem, you are removing the scope for significant action in the immediate term. I think the government is concerned and is worried about what needs to be done in the short-run but it doesn’t want to publicly let on and if it doesn’t want to publicly let on, then it is reducing its scope for doing anything significant in the short-run.
Also, no one is making the point that everything was not fine in March before Covid and lockdowns hit. We had an economy that had consistently slowed for seven quarters and would have continued to slow. Yes, it would have not plummeted by 24 per cent but does anyone think that Q1’21 would have been better than Q4’20. It would probably have been worse. So we should address the fundamental problems in the economy for medium and long run.
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