Heavens will not fall if there's minor fiscal slippage: Ficci president

Ficci president Sandip Somany
Sandip Somany, the new president of the Federation of Indian Chambers of Commerce and Industry (Ficci), tells Subhayan Chakraborty and Indivjal Dhasmana that the industry is reeling from high-credit costs and there should be a 100-basis-point cut in the policy rate by the Reserve Bank of India’s Monetary Policy Committee. Sanitaryware firm HSIL’s vice-chairman and managing director also says that the Insolvency and Bankruptcy Code (IBC) has enabled lenders get Rs 2.7-2.8 trillion and another Rs 70,000-80,000 crore would be realised in the next few months. Edited excerpts:

The Modi government will complete its term in the next few months. How do you rate its performance?

The government has enacted path-breaking legislation. The goods and services tax (GST) is a big credit to the government. The government and GST Council have handled the initial hiccups very well and they were very open to inputs from industry and trade. The council continues to change legislation when and where required, including bringing down rates. 

What about the IBC?

The government will be remembered because of the IBC. Lenders have already collected Rs 70,000 crore from cases admitted to the National Company Law Tribunal (NCLT) and been resolved. For cases that haven't been admitted yet to the NCLT, banks have put pressure on the management, threatening to put them in the NCLT where there are defaults. This has resulted in Rs 2 trillion for banks. I think another Rs 70,000-80,000 crore is going to come through the NCLT in the next few months. The RBI did an estimate that the NPAs in the banking system were Rs 8.5 trillion a few years ago. Realisation is better under the present law than those earlier. Under the new law, banks are recovering around 42 per cent of their NPAs.

You are from the construction industry. Do you think the GST Council will bite the bullet in reducing the rates on cement in its upcoming meeting?

I can’t say when the council will bite the bullet but in principle I think the government's viewpoint is that as and when GST collection improves, it will reduce the rates on various items and eventually the 28 per cent slab will have two-three items. Cement, definitely does not deserve to be in the 28 per cent slab because it is a basic building material. I'm not sure if the council will do it this month or in the next meeting because GST collection has been a bit weak now.

What will be your advice for the next government?

India is on a good wicket. In every country's history, there comes an inflection point. If you have good policies and good governance at that point of time, you can significantly drive up GDP and create wealth for all citizens. I think India is very well placed. How we utilise that placement is for us to decide. I think the GDP growth rate is good. Any government that comes will need to be decisive, honest and stable.

What is your experience with Make In India? 

To promote Make in India, we have to be more cost-competitive. Land, finance and power are more expensive in India than in comparable countries. Land is a one-time capital expense. But rates of interest and power are things that concern industry. Our interest costs are out of sync with those of our neighbours and now even by Indian standards. We are at a record high in terms of real interest rates. So, the next move to trigger consumption and investment will have to be significantly lower interest rates — by at least a 100 basis points.

Do you think the Monetary Policy Committee will go for this huge policy rate cut in the February meeting?

That’s for the RBI to say. But there's no need for caution. We feel the RBI has the scope for at least a 100-basis-point cut. We would encourage the RBI to not follow the normal convention of cutting only 0.25 or 0.50 percentage points. 

This time it will be an interim Budget. Do you have any expectations from it?

At best, the finance minister can make a few statements giving directions. I don’t think he will make significant changes. Anyway, the Budget these days is only for direct taxes. 

At least the numbers will be there. Do you think the government should stick to the fiscal deficit target or should it loosen up a bit on the expenditure side?

Under a benign inflation scenario, there is no apparent risk to the government in the near future. If the government decides to perk up the economy a bit, a minor slippage from the fiscal deficit target by a couple of percentage points would not lead to the end of the world. Widening the deficit from 3.3 per cent of GDP to 3.5 per cent would not cause the heavens to fall.

Ficci has Flipkart, Amazon and the Confederation of All India Traders as members. How do you see the recent changes made by the government in the FDI rules on e-commerce?  

This is a very delicate balancing act by the government. On the one hand, they have to protect the interests of domestic mom and pop stores and mid-size retailers. On the other hand, they have to encourage large foreign companies with deep pockets.

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