‘After labour, land and power reforms need to be worked on’: FICCI President

Goenka also said there were positive signs with respect to private investment and that the manufacturing sector must grow faster than 10 per cent to absorb the growing labour force. Edited excerpts:

India’s GDP growth continues to exceed expectations, but clarity on private investment is elusive. Have the income tax and Goods and Services Tax (GST) rate cuts improved the outlook for consumption and investment?

I think all indicators are fairly positive. Certainly, after GST 2.0, the changes — October has been a strong month and we have seen that continue into November as well. I think capacity utilisation levels are inching up and that should spur some revival in capital expenditure. If you look at PFCE (Private Final Consumption Expenditure) data, etc, that is showing positive (signs for) consumption. And the corporate sector has a fair amount of powder — profits and de-leveraged balance sheets. To that extent, we are seeing a shift and I am fairly optimistic that this is a long-term shift.

About Rs 2.4 lakh crore has been put into the hands of the consumer between the income tax and GST reductions. With that money going into the hands of the consumer, we are seeing a good shift in demand and, therefore, utilisation limits.

How will the industry balance the consequences of the labour codes, such as compliance reduction and the ability to scale versus the higher costs?

I look at it, largely, as a very positive action. Today, things like retiral benefits, simplicity of movement of people across the board, women working in night shifts, safety norms, all of that is absolutely very important. We can’t think about everything on a cost basis — that as a result of this retiral benefit there is a 1 per cent increase in cost. There has to be a certain minimum level of basic protection and benefits that people should receive. Competitively, we are strong on people costs across the world. So, to that extent, I don’t think the industry should complain at all about the cost increase. I think it is only better — 29 codes (have) come down to four, life has become easier, (there is) cross-state movement… If we have to do something, we have to work on our own productivity or figure out ways of increasing efficiency.

What is the next big reform that the government should take up?

Two things come to mind: One, continued focus on factors of production. Some amount (of work) on labour has been done, but land and power are something that we would continuously work on — how do we reduce the cost of doing business? In addition to power there is logistics. With infrastructure expenditure, logistics costs are coming down. But certainly, something can be done on cross-subsidisation of power and acquisition of land…

The second big area would be the role of the state. The Centre is fairly focused on the ease-of-doing-business reform, but how do we get a more uniform shift of (focus from the) states? One of the suggestions that we have is an index (that measures) ease of doing business at a district level or state level.

How difficult is it going to be to increase the share of manufacturing to 25 per cent in the long term?

In the long term, manufacturing has to grow at beyond double-digit pace. We have tailwinds such as people, skills, and talent. Apple used to make nothing 5-7 years ago. Now, I think 22 per cent of Apple’s phones are made in India; they are building the newest iPhones in India.

On the industry side, more quality consciousness, more focus on R&D, a more global focus — these are the things which we also have to do. It’s a partnership: the government does some bit and we do some bit. I am an optimist. We will have to do it; there is no option. Otherwise, with productivity (gains) and artificial intelligence, there is a little bit of risk for jobs. And the way to (more) jobs is going to be through manufacturing. Services can absorb some amount, but manufacturing will have to absorb a large share. We have 10 million people coming into the workforce every year. There is no choice.

We have to grow much larger and think bigger. As entrepreneurs, we are also a bit RoI (return on investment) focused. We think if demand is 100, I’ll set up a factory of 120. China will set up a factory of 300, because 10 years ahead they know (demand) will go up to 300. So how do we as entrepreneurs think about longer term RoI? It can’t be just about the here and now.

Are we falling behind Asean (Association of Southeast Asian Nations) nations? Earlier, we worried about Chinese dumping. Now, it’s Vietnam and others, at least in manufacturing, who have used Chinese investments to their benefit.

Our main focus in FICCI for the coming year is on how we take manufacturing as a percentage of GDP from 15-16 per cent to 20 per cent plus levels and 25 per cent in the long term. To do that, we have four priorities: how do we take R&D and innovation from 0.7 per cent (of GDP) to 1 per cent plus and encourage industry-academia relationships, partner with the government to ensure reforms that have been announced are carried forward effectively and recommend a few areas of further simplification, leverage free trade agreements effectively and communicate that to our companies, make sure we have critical raw materials so that we are not very dependent on a few countries, and (how do we achieve) manufacturing excellence.

As the government and the Prime Minister have said, we have to be more atmanirbhar in our own way, uplift our own capabilities over time, think more global, sell more global, which I think industry has not done enough. So, the onus is now on us as well. Of course, joint ventures and partnerships are most welcome; and I’d say we should partner with countries that are more complimentary to us, for example, the EU, US, etc. I would park China as a political issue. I mean, how much of a long-term relationship can we have (with China)? I would keep that in mind because the country risk is high.

We have started to see the impact of the US tariffs in industrial growth and export data. For how long can we withstand this high tariff?

The government has focused on export diversification and that has worked well. If you look at the merchandise export numbers, they’ve been largely flat in an environment of tariffs. In the sensitive sectors, there has been growth: gems and jewellery, marine life, for instance; garments have got adversely affected.

We had the Commerce Secretary at our AGM and he was fairly optimistic that most of the negotiations have concluded. Of course, it’s a matter of time when it (US FTA) should get signed and there’s always that little risk of things going wrong. But we are hopeful, at least from an industry point of view, that the end is near and we can go back to higher trade levels with the US.

Is the ideal tariff rate in the 15-20 per cent range?

I would say close to 15 per cent would be ideal. Of course, the lower the better.

What should the government do to balance trade policy for Micro, Small, and Medium Enterprises and large companies, keeping in mind quality control orders, FTAs, etc?

MSMEs are the backbone of the industry; to that extent, the government is very clear on protecting Indian interests in general. I think we have a lot to gain out of FTAs because our cost of production is substantially lower. So, if we get access to global markets, whether it is MSMEs or large corporate entities, we have a fair amount to gain.

If you look at our FTAs in the past, with maybe Japan and South Korea, they’ve not worked because of non-tariff barriers. But if you look at the FTAs (signed) in the last 2-3 years, they have been far more comprehensive and the advantage that we’ve been able to get out of them has been far higher.