TV Narendran, President of the Confederation of Indian Industry (CII) and the CEO & MD of Tata Steel, is of the view that the economy should be able to navigate the Covid third wave “without much damage” and that private investments are showing signs of picking up. In an interview with The Indian Express, he, however, underscored the need to support consumption as incomes of many households have shrunk post pandemic. Edited excerpts:
How different is the current Covid wave from previous ones?
If you look at the wave itself, what we are seeing is that it’s spreading faster, but the impact is milder … so that’s as far as the wave is concerned. As far as industry is concerned, even between wave one and wave two, industry was much better prepared for wave two in terms of Covid protocols. In wave one and even in wave two, most people were not vaccinated. At least now, many of us in industry have all our employees, their families, the contract workers vaccinated. So that’s the way we see it.
I also feel that with each wave, there is now far better coordination between government at the Centre and states, between government and industry. Hopefully, the economic impact of this wave would not be significant, just like wave two had a huge humanitarian impact in terms of number of lives lost, but the economic impact of wave two was less than the economic impact of wave one. So I hope that wave three will not have the loss of lives that we saw in wave two, and neither will it have the economic impact that wave one had.
The Prime Minister and the Finance Minister have been meeting industry groups ahead of the Budget. What are your suggestions on economic policy?
One, we have said that it’s important to continue the focus on government investment, particularly in infrastructure — because it’s a big demand multiplier and a driver of cost competitiveness, because many sectors benefit when the government spends on infrastructure, and because it creates activity in construction. And if you’re spending on rural infrastructure, it spreads economic activity across the country. Secondly, it helps competitiveness.
The second part of our submission has been to continue to work on the cost and ease of doing business. We also suggested that there is a need to develop something called a ‘cost of doing business’ index. CII can help develop that, which will help us compare the states on the factors. Then there is also a need to help the consumption side, because it’s a bit fragile as many households have seen incomes shrink because of the pandemic … have seen job losses, and many households have seen expenditure increases because of their spending on health. So we’ve said they need to be supported.
At the bottom level, you have the MGNREGA scheme, etc, which will help, but focus on health infrastructure. Out-of-pocket expenses that households have to pay is pretty much one of the highest in the world. In India, it’s, I think, about 48 per cent of the expenses out of pocket, whereas in the rest of the world it’s much lower than that. And our own expenditure on health at 1.3 per cent of GDP is low compared to what it should be … We’ve also said that India needs to plan for becoming more and more technology intensive. So there needs to be a technology commission, which brings industry, government and academia together, because many things that we want to do over the next few decades will need a lot of technology intensity, whether it’s semiconductors, hydrogen, or carbon capture and storage, usage, whatever, you know, so anything, there’s a lot of work to be done…
The recovery seems uneven, where the bigger players are doing are well while MSMEs are struggling.
At a larger level, rising inequality is an issue, not just in India but globally. I think a lot of the pushback against world trade is driven by this. There is a feeling that globalisation has helped some and left a vast majority much worse off. These are realities that different countries are dealing with.
So, one is for us to ensure that a lot of the government expenditure is focused on what helps the lower socio economic strata. So if you invest in infrastructure, we are also creating jobs in construction across the country … Then you need to have social security schemes like MGNREGA to help people. You need to invest in the health infrastructure because that is where a lot of people’s household budgets go out of line. How do you insulate the common man from these kinds of shocks which they cannot bear? I think Ayushman Bharat scheme is a good one in some sense as it provides some insurance. So how can we have more insurance schemes more facilities available on health and education to the common man? That’s where the government has a role to play. Private sector will play a role, but we will again cater to a different segment of society. I think CSR cannot be a substitute for government role in many of these areas. Consumption cannot be driven only by the rich. It has to be driven by the broader part of the pyramid, so they need to be supported. Similarly for MSMEs. So, while the large companies may do well, in a more formal economy, we need to have the support system for the MSME sector so as to help them.
But size alone is not a sign of richness or prosperity. There are so many world class MSMEs in India, and if you look at countries like Germany, Italy, Korea, etc, there are some MSMEs who are fantastic, who are dominant. They may be small companies, but they’re very dominant in the segments that they operate, very technology intensive, very customer intensive, very quality focused. We also need to create that ecosystem of world class MSMEs in India. Auto component, for instance, there are so many world class MSMEs in that sector. So we need to help that transition of smaller companies also into sustainable profitable world class companies. And we need to support, from a socio economic perspective, the broader parts of the pyramid with the interventions which will at least make sure that in difficult times, they don’t fall off the cliff. And then, of course, there’s no other solution that over a long period of time, create jobs and improve the quality of jobs that are created.
To address rising inequality, some economists have suggested modest wealth tax on multi-millionaires. Is that suggestion viable in India?
Whatever be the tax, ultimately, you need to make sure that compliance on tax is better, you have more taxpayers, you collect more tax, because the last thing you want is you increase the tax and a lot of people leave the country, that doesn’t solve the problem. So, to me, it is about how do you effectively tax people and how do you translate the tax into benefits for the parts of the population that you want to get benefits from that. So the whole system needs to look at that. Even if you look at income tax today at the highest level, it comes to some 40-45 per cent. Then, on top of that, if you have a GST and other taxes, then the effective tax rate is quite high in India. So the question is with high effective tax rates, are you able to deliver the services that the common man requires or anybody requires? Can drive more efficiency there and are there enough people paying taxes? I think that’s why the government is also trying to increase the tax net, because few people cannot (help it). It’s like saying the same thing I said about CSR (corporate social responsibility) expenditure. At least for a few years, the 2 per cent of all the companies worth Rs 12,000-15,000 crore, that is nothing to solve the problems of the country. Similarly, a wealth tax will not solve the problem of the country. It can help. But I think the larger issue is how do you improve the effective tax rates in India? How do you optimally tax people and make sure that the tax works well? So I think the answer is deeper, actually.
Private investment is still sluggish. Do you see it picking up?
If you look at private sector investment, ten years back, three sectors accounted for most of it: power, steel and chemicals/petrochemicals, of which power is not going to come back to those levels because that nature of investment was different. So if you see the data for the last ten years, the biggest shrinkage is in power. And that’s not going to come back to those who were in coal blocks, thermal power plants, that era is over. So now you have investment in power, but the scale is very different if you’re setting up a solar plant or windmills and all that. It’s a very different kind of investment level. But steel and chemicals are coming back to those levels.
If you look at it in 2017-18, steel industry was not really looking at making big investments. It was investing but balance sheets were leveraged, profitability was not so great and demand was slipping. Like auto industry has been shrinking for the last three years. So unless construction and auto sector support, steel consumption will not grow as much. So I think we are seeing those conditions back. And if you look at steel itself, investments announced by private sector is about Rs 100,000 crore for the next 3-4 years.
Chemicals is also coming back. Power will be a very different nature of investment. Automotive will take some time to come back because they have supply chain issues in passenger cars and they have demand issues and commercial vehicles, which is coming back but still the capacity utilisation is not where they were pre-pandemic.
What is interesting is of course the new areas where investments are coming in. Like electronics manufacturing. That’s an area and the sector supported by the PLI schemes etc you see investments come in. Investments continue to be there in oil and gas both by government and by private sector. So when you look at the data, the private sector investment today is at pre-pandemic levels. So if economy recovery is on track, the investment side I think is getting back on track. The consumption side, which has always been strong, needs to be nurtured to make sure it doesn’t slip too much…
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