Even though global economic conditions pose the risk of short-term turbulence through second degree effects, India is well positioned and the best way to prepare for it is to focus on manufacturing, Ficci President Subhrakant Panda said. In an interview with Aanchal Magazine, Panda said the government must consider to extend the concessional tax regime for new manufacturing units beyond 2024 to help businesses to board the manufacturing bus. Edited excerpts:
Q: With the global economic outlook pointing towards recessionary conditions, what impact do you see for the Indian industry and economy?
A: To just peek at why we are where we are today, which is about as well placed as India can be from its own domestic situation, that’s very clearly to do with the fact that going right back to the pandemic, where both the timing and the quantum of stimulus measures was spot on. Because what we’re seeing globally is that wherever there was an excess of stimulus measures, their inflation has been elevated for far longer, and has been much more stubborn than what we’re seeing. Not only that, during the pandemic, the government focused quite a bit on reforms. As a result, we are benefiting from that today. So whether it is enhancing ease of doing business, whether it is reducing the cost of doing business, or if you look at it from the point of view, I’m a very big votary of the PLI schemes, which are a very focused manner of targeting sectors where India is import dependent or there is an unnecessary outflow of foreign exchange. So as a result of that we are looking at a growth rate of 7%, which is the fastest in the world…but what is very, very clear is that we are not an island, we are not decoupled. From that point of view, the IMF forecast for global growth is a matter of concern, it stood at 6% for 2022 and it has almost halved to 3.2% for 2023…so, unquestionably there are going to be second degree effects when global slowdown or global growth slows down so sharply. While India in itself is very well positioned, and even next year, we are going to once again be the fastest growing large economy, but there will be second degree effects for which we need to prepare. The inflationary impact of Europe or US, the consequent effects on growth, we are seeing that trickled through to us, from the point of view of exports, which had a sustained period of growth, and breached the $400 billion mark. For the first time this year, it has definitely taken a bit of a knock and we’ll be under pressure going ahead. So that is where we have to prepare ourselves. And the best way to do that is to continue to focus on reforms to continue to focus on manufacturing competitiveness.
The steps India has taken to improve ease of doing business, and to reduce the cost of doing business, especially with logistics cost being targeted, will have an impact. What is clear at one level is that the next year is going to be turbulent…we have to be prepared for a certain degree of of turbulence, but I am a great believer in the India growth story, and what I believe is that while we have to have one eye on the short term, and see in real time what corrective measures need to be taken to navigate, deftly, but some little course corrections may be required to navigate but equally one has to be in the medium to long term, because I think the potential that we have over the medium to long term is just absolutely stupendous. We shouldn’t be alarmed by short term turbulence.
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I think a few steps one can take is broadening the scope of the PLI schemes to include certain high export potential sectors. And the second thing, what the government is already doing, which is looking at port proximate clusters, which can give a boost to manufacturing exports. The importance of the manufacturing sector is very, very clear, because you can’t have a situation where 16-17% of the country’s GDP comes from agriculture, but 45% jobs are agri jobs, and we have a robust services sector, which will take up a lot of the slack, but manufacturing simply cannot afford to be in that 16-18% range, it needs to go up.
I believe there is a lot of scope for a China plus one strategy. And when we had that earlier, unfortunately, you know, we couldn’t quite capitalize on it. But today when you talk about China plus one, that one need not necessarily be India, a lot of it will come to India, but we have to work at it. And to that extent, taking some steps like for example, in our budget recommendations, we have talked about extending the concessional tax regime for newer manufacturing new manufacturing entities, which is currently slated to expire in 2024…when you look at competing geographies, like Vietnam, Cambodia, Singapore etc where they have taxes of 17-18%. So we need to be competitive in that regard..we need to provide a clear window in our opinion for five years to say look, this is your opportunity to move supply chains to India. That will be a bold step which would attract investment.
Q: You spoke of the concessional tax regime. The government cut the corporate tax rate, but the benefits of it were not really visible on ground.
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A: I think we are conflating two issues. As far as corporate tax rates are concerned, for existing units, you have the option of either continuing with your old tax regime, or switching to the new one, which is 25% plus surcharges. Now, as far as the concessional tax regime of 115 BAB is concerned, that was first set to expire in 2023, which was extended to 2024. Now, if you look at it from what investment has it been able to attract? I agree, not much. But you have to see it from the context that you had two years of COVID, with lockdowns, etc, which disrupted a lot of activities. It was at a time where people were hesitant to commit new investments…the government did at the behest of chambers extend it from ‘23 to ‘24. Maybe you will see some data of units coming in. But I mean, on that basis alone, does it justify extending 115 BAB? Perhaps not. Let me be clear about that. But what we are saying is that when the Prime Minister says that we are willing to do everything to climb the manufacturing bus this time, we feel this is an important aspect.
Q: Given the concerns over Covid cases and related shutdowns in China, there may be risks affecting the linkages. How do you see that?
A: I would like to contrast it first of all with how well India has handled the pandemic, starting with lockdowns, when you didn’t know what it was about…then when vaccines came about we have conducted the world’s largest vaccinations in a very efficient manner…contrast that with China where unfortunately at the first instance, they’ve had a lot of lockdowns, and continued longer than perhaps when necessary, leading to unrest. Now they’ve opened up in a manner where there are reports of a surge in cases…but I think it’s a little too early. And, given the state of affairs, whether there is underreporting of cases, or is this a lot of exaggeration…in a few days, it will be clear, but I really commend the government for being proactive.
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I don’t want to speculate but I would say that for the sake of the Chinese people and the globe, I hope this is something under control, because there are two degrees of concern. One, there will again be disruptions to supply chains and what impact will it have? Hopefully, if at all, it will be a short, sharp sort of disruption…the other aspect is the human aspect, which is that if there is uncontrolled spread, will there be mutations…the steps being taken by the government to get all stakeholders, the states on board and ask for greater watch on what is happening…it’s always better to be prepared.
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