 "There is no justification for keeping gold out of the tax net: Naushad Forbes")
Naushad Forbes, director of steam engineering and control instrumentation firm Forbes Marshall, recently took over as Confederation of Indian Industry (CII) president. A former lecturer and consulting professor at Stanford University, he tells Indivjal Dhasmana that incidents like Vijay Mallya's fleeing the country and the Panama Papers should be viewed from a legal point of view without any moral policing. Edited excerpts:
You have taken over as CII president at a time when the Narendra Modi government is about to complete two years in office. What is your assessment of the government's performance?
The Modi government has taken many positive steps during its first two years. And, the benefits will soon start showing up on the ground. However, the pace of implementation needs to improve.
The Prime Minister has himself set the goal of 50. It's very important that we get there. Even more important would be when average firms say it is easier to do business now than one year ago. Most of the changes required are not legislative. These are in notifications, implementation, interpretation of a particular policy, sorting out differences in interpretation of a policy among departments, regulators, and central and state governments, etc. Then there is the Apprenticeship Act, passed a year-and-a-half ago. It is still being notified by various state governments. Notifications need to be completed and companies need to take advantage of it.
What about Make in India. Has it delivered?
We saw a significant increase in foreign investment last year, compared to the previous year. We have been told that there has been a significant shift in foreign direct investment (FDI) in manufacturing than in services. These are an indication of delivery by the Make in India programme. For example, a big announcement has come from Foxconn investing billions of dollars and creating a million jobs in 10 years. That is a major benefit to us as a country. It's a sector - electronic hardware - where we need to be present in.
You advised the government to frame trade policy as an outward-looking, and not inward-looking, tool. In this regard, what is your take on minimum import prices and safeguard duties imposed by the government on steel?
We think there is no justification for tariffs for an established industry like steel in the medium- to long-run. As a temporary short-term measure to deal with the global supply glut, there might be an argument to protect the local industry. But, that is the only argument that at least we in CII will have to accept.
How do you see the impasse between jewellery players and the finance ministry over one per cent excise duty on gold?
Gold will be in the tax net within 10 years. So will jewellery. And, there would be higher tax rates associated with it. There is no justification for keeping something like gold out of the tax net. It will be taxed and it will be a higher tax. I will give you another prediction - in the next 50 years, agriculture income will be taxed. It has to be. It's an economic absurdity to leave out a sector on the basis of what you do. You can have higher exemption limit.
Why are you more hopeful than the government itself by projecting 7.75-8.25 per cent economic growth for the current financial year? The government expects only 7-7.75 per cent growth rate...
Our optimism is based on one specific thing. We see recovery in agriculture growth this year on the basis of a normal monsoon. We expect agriculture to grow faster than the previous two years. That pick-up would show in the gross domestic product numbers.
You wanted Indian multinationals to grow. However, don't you think the bitter experience of Tatas' acquisition of Corus might discourage others to expand in global markets?
I don't think so. When the Tatas bought JLR and Corus, Ratan Tata was praised as a genius. Today, we are saying the exact opposite. In entrepreneurship, you take calls and you make choices. If the global steel demand had continued the way it was, Tata would have been considered a genius for the Corus buy even today. I think the call to invest then was right and I think the call to close now is right, too. I don't think it is going to affect acquisitions by Indians abroad as long as we base our investment on sensible economics and as long as we have enough management bandwidth to make a success of what we buy and integrate it in our businesses.
Are you satisfied with the Reserve Bank of India's (RBI) rate cut by 25 basis points (bps) and with the fact that banks are not transmitting even this rate cut?
We are definitely happy with the 25 bps cut. We would have probably been happier if it had been 50 bps. We are especially happy with the direction. Interest rates are getting back at the level where they were five years ago. Only a two-third of the 150 bps cut by RBI over time has been passed on by banks to borrowers.
The only way to deal with that is to create competition. Let more banks vie for the same borrowers. Let more borrowing and lending happen. Then, the overall level of credit will go up. And, we'll see the spread between RBI's rate cut and banks' lending rate cuts narrow.
How will lending increase when banks have high non-performing assets (NPAs) and one of the defaulters - Vijay Mallya - has reportedly fled the country? What will be your advice to the government to deal with wilful defaulters?
At the end of the day, all of us should be concerned about the legality of the issue. When we say wilful, it would mean there is some criminality in the default. That we should prosecute to the maximum extent possible by law. Legal perspective is the only perspective that is valid. The business perspective is not. You go bust; it's a consequence of taking risks. You choose to spend money in a particular way, it is your personal choice and not up to me to pass a moral judgement about you.
Won't the incident prompt banks to be extra cautious in lending in the future?
I don't think it will have that effect. I think if one was lending on the basis of criteria other than financial merit, as is being alleged, it should stop. One should lend on the basis of the borrower's credibility. As the NPAs get cleared up and this whole wilful defaulter thing clarified, we will see a much healthier environment where the right companies would be able to get funds from the right banks for the right projects. I'd say airline is a crazy sector, where people around the world like to compete on costs. Any business where people compete on the basis of costs is a lousy business to get into.
Another controversy is the Panama Papers. What do you think of businessmen alleged to be flouting laws?
As I said before, we should focus on the legality of what was done and not done. Both the RBI governor and the government said the same thing. If you use a tax haven, all that matters is whether it's legal. I don't want to play the role of a moral policeman.
The government has not been able to evolve a consensus on the goods and services tax (GST). The Congress has three major points of disagreement. How would you prevail upon the political parties to pass the Constitution amendment Bill in the Rajya Sabha?
We had several meetings with the Opposition as well. We are very clear that the problem is not lack of consensus. The problem is politics. The government has said two out of three issues are okay. There is one pending issue. If there is political will to make it happen, it will happen quickly. We are confident that it will happen, but we don't know when. There is no tangible issue of any substance. It is an issue of adequate political will. I don't want to make any comment on when the political will would be adequate.
Are you okay with the constitutional cap on GST rates as the Congress has been demanding?
Our interest is actual rate. The rate that both (the government and the opposition) are talking about is 16-18 per cent. We are okay with that rate. We are perfectly okay with either of the two situations - whether it is a rate that we pay because of law now or it is prescribed in the Constitution.
You have taken over as CII president at a time when the Narendra Modi government is about to complete two years in office. What is your assessment of the government's performance?
The Modi government has taken many positive steps during its first two years. And, the benefits will soon start showing up on the ground. However, the pace of implementation needs to improve.
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Take for instance, ease of doing business. It has reversed the negative direction that we were going for the past many years. We should not underestimate the reversal of that direction. Now, we have to speed up. We are at 130 in ease of doing business ranking of the World Bank out of 189 countries. It's no rank for us.
The Prime Minister has himself set the goal of 50. It's very important that we get there. Even more important would be when average firms say it is easier to do business now than one year ago. Most of the changes required are not legislative. These are in notifications, implementation, interpretation of a particular policy, sorting out differences in interpretation of a policy among departments, regulators, and central and state governments, etc. Then there is the Apprenticeship Act, passed a year-and-a-half ago. It is still being notified by various state governments. Notifications need to be completed and companies need to take advantage of it.
What about Make in India. Has it delivered?
We saw a significant increase in foreign investment last year, compared to the previous year. We have been told that there has been a significant shift in foreign direct investment (FDI) in manufacturing than in services. These are an indication of delivery by the Make in India programme. For example, a big announcement has come from Foxconn investing billions of dollars and creating a million jobs in 10 years. That is a major benefit to us as a country. It's a sector - electronic hardware - where we need to be present in.
You advised the government to frame trade policy as an outward-looking, and not inward-looking, tool. In this regard, what is your take on minimum import prices and safeguard duties imposed by the government on steel?
We think there is no justification for tariffs for an established industry like steel in the medium- to long-run. As a temporary short-term measure to deal with the global supply glut, there might be an argument to protect the local industry. But, that is the only argument that at least we in CII will have to accept.
How do you see the impasse between jewellery players and the finance ministry over one per cent excise duty on gold?
Gold will be in the tax net within 10 years. So will jewellery. And, there would be higher tax rates associated with it. There is no justification for keeping something like gold out of the tax net. It will be taxed and it will be a higher tax. I will give you another prediction - in the next 50 years, agriculture income will be taxed. It has to be. It's an economic absurdity to leave out a sector on the basis of what you do. You can have higher exemption limit.
Why are you more hopeful than the government itself by projecting 7.75-8.25 per cent economic growth for the current financial year? The government expects only 7-7.75 per cent growth rate...
Our optimism is based on one specific thing. We see recovery in agriculture growth this year on the basis of a normal monsoon. We expect agriculture to grow faster than the previous two years. That pick-up would show in the gross domestic product numbers.
You wanted Indian multinationals to grow. However, don't you think the bitter experience of Tatas' acquisition of Corus might discourage others to expand in global markets?
I don't think so. When the Tatas bought JLR and Corus, Ratan Tata was praised as a genius. Today, we are saying the exact opposite. In entrepreneurship, you take calls and you make choices. If the global steel demand had continued the way it was, Tata would have been considered a genius for the Corus buy even today. I think the call to invest then was right and I think the call to close now is right, too. I don't think it is going to affect acquisitions by Indians abroad as long as we base our investment on sensible economics and as long as we have enough management bandwidth to make a success of what we buy and integrate it in our businesses.
Are you satisfied with the Reserve Bank of India's (RBI) rate cut by 25 basis points (bps) and with the fact that banks are not transmitting even this rate cut?
We are definitely happy with the 25 bps cut. We would have probably been happier if it had been 50 bps. We are especially happy with the direction. Interest rates are getting back at the level where they were five years ago. Only a two-third of the 150 bps cut by RBI over time has been passed on by banks to borrowers.
The only way to deal with that is to create competition. Let more banks vie for the same borrowers. Let more borrowing and lending happen. Then, the overall level of credit will go up. And, we'll see the spread between RBI's rate cut and banks' lending rate cuts narrow.
How will lending increase when banks have high non-performing assets (NPAs) and one of the defaulters - Vijay Mallya - has reportedly fled the country? What will be your advice to the government to deal with wilful defaulters?
At the end of the day, all of us should be concerned about the legality of the issue. When we say wilful, it would mean there is some criminality in the default. That we should prosecute to the maximum extent possible by law. Legal perspective is the only perspective that is valid. The business perspective is not. You go bust; it's a consequence of taking risks. You choose to spend money in a particular way, it is your personal choice and not up to me to pass a moral judgement about you.
Won't the incident prompt banks to be extra cautious in lending in the future?
I don't think it will have that effect. I think if one was lending on the basis of criteria other than financial merit, as is being alleged, it should stop. One should lend on the basis of the borrower's credibility. As the NPAs get cleared up and this whole wilful defaulter thing clarified, we will see a much healthier environment where the right companies would be able to get funds from the right banks for the right projects. I'd say airline is a crazy sector, where people around the world like to compete on costs. Any business where people compete on the basis of costs is a lousy business to get into.
Another controversy is the Panama Papers. What do you think of businessmen alleged to be flouting laws?
As I said before, we should focus on the legality of what was done and not done. Both the RBI governor and the government said the same thing. If you use a tax haven, all that matters is whether it's legal. I don't want to play the role of a moral policeman.
The government has not been able to evolve a consensus on the goods and services tax (GST). The Congress has three major points of disagreement. How would you prevail upon the political parties to pass the Constitution amendment Bill in the Rajya Sabha?
We had several meetings with the Opposition as well. We are very clear that the problem is not lack of consensus. The problem is politics. The government has said two out of three issues are okay. There is one pending issue. If there is political will to make it happen, it will happen quickly. We are confident that it will happen, but we don't know when. There is no tangible issue of any substance. It is an issue of adequate political will. I don't want to make any comment on when the political will would be adequate.
Are you okay with the constitutional cap on GST rates as the Congress has been demanding?
Our interest is actual rate. The rate that both (the government and the opposition) are talking about is 16-18 per cent. We are okay with that rate. We are perfectly okay with either of the two situations - whether it is a rate that we pay because of law now or it is prescribed in the Constitution.