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Apr 23, 2012 03:00 PM IST | Source: CNBC-TV18

Early GST implementation will improve GDP by 1.5-2%: Godrej

Soon after taking over as the President of Confederation of Indian Industry (CII), Adi Godrej, chairman of the Godrej Group is batting for early implementation of goods and service tax (GST) in India.

Soon after taking over as the President of Confederation of Indian Industry (CII), Adi Godrej, chairman of the Godrej Group is batting for early implementation of goods and service tax (GST) in India.

In an exclusive interview to CNBC-TV18’s special show 'The Appointment', Godrej said, "The reform opportunity in front of us, if properly implemented, can take us back to a 9-10% growth rate very easily. For example if you implement GST at an early date, you add 1.5-2% points to GDP growth."

GST is being delayed because of serious differences between the Centre and states. However, recently Bihar Finance Minister had assured that it is likely to be implemented by April next fiscal.

Here is an edited transcript of his interview. Also watch the accompanying videos.

Q: I am not quite sure if I should be congratulating you because you come in at a time when people are writing off the Indian story. The distrust between corporate India and the government is huge. Decision-making seems to have been paralyzed and has been paralyzed for quite sometime now. I don’t envy you at all.

A: The country is in a tough situation. The GDP has been decelerating, the reform programme has slowed down and governance issues are not being tackled as rapidly as they should, but the opportunity is also tremendous. So, the reform opportunity in front of us if properly implemented can take us back to a 9-10% growth rate very easily. For example if you implement GST at an early date, you add 1.5-2% points to GDP growth.

Q: I understand that you led a delegation that met the Prime Minister. What does he have to say? The last couple of meetings that have happened with the Prime Minister have been this – come on corporate India, don’t keep giving us a hard time? Don’t keep painting us with the same negative brush every time you talk to the media. Was there a difference in the manner in which the Prime Minister addresses the issue with you?

A: Yes, we had a very good meeting with the Prime Minister. We started the discussion by saying that we think the reality is not as bad as the perception.

Q: You said that you don’t believe the reality is as bad as perception?

A: We don’t think the reality is as bad as the perception and both the government and industry CII needs to see to it that we do not get overly negative. Perception is very important. At the same time the government must not make moves that are perceived to be negative. For example this retrospective amendment, GAAR etc. has been very badly perceived. I am not an expert, I not even sure whether it ought to be so badly perceived.

Clearly, it is not good for Indian economy and it is not good to attract investments into India. We should somehow find solutions to see that the perception does not get bad.
Q: How was the response from the Prime Minister?

A: The PM said it would be good if both the industry and government could work together. You cannot solve all the problems of the country in a twenty minute meeting but he was very positive on this front. Then of course we also mentioned to him about the various initiatives CII is taking in terms of inclusiveness, in terms of employability. CII is in unique position to add value in circumstances such as this.

We have about 65 offices across the country, and we have regional councils, state councils. There are a lot of states are doing very well, take agriculture for example. One of the reasons why we have the inflation problem is that agricultural supply is not keeping up with the agricultural demand. In some states we have a 10% growth rate in agriculture, benchmarking the best practices in India and spreading them around can help a lot.

We have done this very successfully in many areas in the South for example. This is what we are going to concentrate on this year – how to spread the best practices that prevail in India across India.


Q: But coming back to the conversation with the Prime Minister. You specifically raised the issue for instance of GAAR and retrospective amendment. More than GAAR it has actually been what has happened on the retrospective amendment that seems to have soured sentiment with regards to India in the minds of the foreign investors. Was there an acknowledgement on the part of the government that we need to review the manner in which we have gone about this?

A: In our two day conference reference to the retrospective amendments was made several times. Even the Finance Secretary mentioned in the open house that he would ensure that whatever is causing the negative perception would be addressed. I think people have realized this.

Now you can’t expect an immediate response that we would do it. They will need to have an internal dialogue. I expect that before the Budget is passed, most of these negatives will be removed. If they don’t then we are in for a lot of trouble and most people in government realize that.

Q: So while there is one point of view that corporate India needs to stop talking itself into a slowdown there is also another point of view that there is never been this kind of negativity with respect to the India story. You speak to foreign investors very often. What are they most worried about at this point in time? What is the feedback that CII is getting from foreign investors? We have had a bunch of industry associations in the US writing to Timothy Geithner saying that raise these issues with Finance Minister Pranab Mukherjee when you meet him later this week. What are you being told of this?

A: Investors need certainty; investors need a regime they can rely on. They do not want to lie in a situation where five years down the road you find out that what you thought was X has become Y, so that clearly needs to be clarified. These GAAR provisions and many other provisions in this Budget, we have had retrospective amendments in the past but they were relatively minor. This time they are quite widespread and in much greater measures.

Q: But for instance when they did the retrospective amendment which brought the special economic zone tax treatment in question, it was developers of the special economic zone who made a big hue and cry about it. Some even threaten to go to court, some did actually go to court but there was not this sort of backlash that we are seeing with respect to this particular retrospective amendment?

A: It is not just backlash but a lack of credibility. When there is a lack of credibility in the economic environment of a country it can create a lot of harm. So it is very important for the government and CII to work together to see that this lack of credibility, this sentiment being so weak is overturned.
Q: GST and that seems to be a glimmer of hope on that front at least if one goes by what Sushil Modi has come out and said. I understand that CII has played a part in getting the centre and the states to start talking at least. Are we really hopeful of a breakthrough in a resolution as far as GST is concerned?

A: Yes, I think so we are very hopeful. There was a lot of dissonance between the thinking of some of the states and the centre and CII went and met a lot of the states. We met the opposition, tried to explain to them how important GST was and how we need to cooperate to come to some unanimity on the GST.

We met the Finance Minister also and asked him also to be more generous in his ability to cover the possible losses because there aren’t going to be any losses. When people are worried that they are going to face losses and when you know there are no losses that is when you give what is known as underwriting guarantees.

So we were able to bring the parties together. When the Finance Minister came to inaugurate our two day session mentioned and did recognize the role CII has played in getting the parties together. I believe they had a meeting which I couldn’t attend, but Sunil Munjal from CII did attend it and the movement on the GST is very strong.

Q: What seems to have worked because they have been talking for the last two years? More than two years they had not arrived at any kind of a consensus on compensation, on the way forward. What seems to have worked this time around? Was it industry putting pressure on the state governments?

A: No, I don’t think you could call it pressure. Industry played a role in everybody understanding the great benefits of GST and most people have realized that for small things it is not worth opposing the implementation of the GST. It is going to be a tremendous win win solution for the country and to my mind it will be the biggest single reform in India after 1991.

 It will add tremendously to our macroeconomic fundamentals, to our GDP growth rate, it will bring inflation down and it will be very consumer friendly. So, overall it is something all Indians need to work towards.

Q: Has CII in West Bengal been given the same feedback that CII got from Gujarat and Bihar for instance as far as the GST is concerned?

A: There were some states who were more opposed to GST than others. There was also the federalism issue. So, we generally interacted with the state where we thought the opposition was the most.

Q: Which would include West Bengal?

A: No, I don’t think.

Q: Not really?

A: I don’t think, but our state council also must have met the Finance Minister. I don’t know the details, but the opposition was more from the BJP ruled states.

Q: And they have come on board?

A: I think so.

Q: In terms of the other pending reforms and once again we come back to this business of coalition politics. Mamata Banerjee has made it very clear that whether it is FDI in aviation, pension reforms, insurance reforms, she doesn’t want to play ball with the government. Has there been any indication from the government on whether they are willing to push on any of these matters or let things be as they are for now?

A: No there is no indication and I don’t expect any indication. This is something that would be done internally. If the senior persons in the government decide to take a certain stand, they are not going to discuss it with CII before they do take the stand, but clearly, persuasion is very important.

For example when they brought in FDI in multi-brand retail, had it been done outside time when parliament was in session it could have been done more smoothly. So timing is important, convincing allies early enough is important. The lesson has been learnt and I am sure it will be done in a smoother manner going forward.
Q: Domestic corporate tells the government off record that it will move away with capital if things don’t improve? Is it a real or a false threat?

A: I don't believe any of these stories.


Q: Through the back channel, we understand?

A: I haven't heard it from any industrialist and there is no need to have a situation where we will take our capital from here to there. India has the capability of investing very strongly. Indian companies have the capability investing in India and also outside India and growing outside India are very good for the Indian economy. It creates size, scale, competitiveness in Indian companies and I think it should be welcomed.

Q: It is a manner of putting pressure. It is saying, get your act together or I am going to go elsewhere.

A: It is good to give suggestions and help the government sort out its problems. It is good to talk up the economy. We have talked down the economy more than the reality.

Q: Is corporate India guilty of talking down the economy?

A: I would say we have been overly sensitive on some issues. We have had ups and downs in the past. For example in the economic situation in the end of 2008 was quite similar but we didn’t talk it down and also the government was very positive at that time.

Q: So why do you believe corporate India resorted to talking down the economy as much as it did this time around? Or was it because the distrust between the government and corporate India was so large that it became almost an adversarial position?

A: No. When one is frustrated, one gets excessively angry which is a normal human reaction. I think it was the anger that made people feel that corporate India was talking down the economy. We have discussed this in the CII and we feel we shouldn't do this. We should help the government to try and solve the problems. In some of the states it has worked very well.

We have taken things up to the state where they are doing some benchmarking in the states. If some states can have 10% agricultural growth for 10 years in a row, why can’t those practices be benchmarked into other states? So if you take the best practices implemented in India and take them in other states, I think India can improve dramatically and CII will work to do that.
Q: I want to talk to you about the investment climate. After three years and 13 rate hikes we finally seen a rate cut and CII was very vocal about the need for a rate cut. You still believe that this is not enough to spur investment or turn the investment sentiment around, but is this going to alleviate some of the pain that we have been through?

A: This is a very good first step. Clearly interest rates are gone up tremendously. We need to bring them down as without more reasonable interest rates investment will not take place easily. Returns and investment should be poor, so I do hope this is a first of several repo rate cuts. The economy needs that and inflation has become a bit complex.

In that some, I would say quite a bit of inflation comes from global commodity prices especially crude oil. There is nothing you can do in Indian monetary policy to solve that issue. The rest of it comes from a supply chain deficiency. Now that must be separately attacked and it is mainly an agricultural supply chain deficiency which we need to improve.

We have suggested to the government that investment in multi-brand retail will help resolve some of those issues. Changing the agricultural market acts will help – free up agricultural marketing. These agricultural marketing rules were framed in the time when most agriculture was food grain.

Q: But once again, it goes between the center and the state. The center says what can we do, the state governments need to take the initiative. The state throws it back in the center squad. I have covered at least 12 Budgets where every time we talk about the fact that this could be the year when we will see those reforms coming in?

A: That is an important role that CII can play. Our state level council, our regional councils can take these issues up with the various states. For example Maharashtra recently announced that they are going to free up the marketing of agricultural produces – a lot can be done. When we met to strategize our plans for this year, this was one of the important areas we said we would focus on.

Q: I know you do dipstick surveys at the CII. What is your own sense of cap ex at this point in time? The corporate say we are waiting, it could be on account of a approval, it could be on account of the fact that interest rates were very high. What is the sense that you are getting about people beginning to start spending again?

A: Investment has clearly slowed down. One of the reasons is the high cost of capital. This reduction in the repo rate is a good signal. The other as you rightly said, permissions are slow to come by.

So even if you have taken a decision to invest in a project, if the project is unclear or parts of a project aren’t clear investment won’t come by. Then there are input issues, say the power sector is seriously suffering from coal availability issues. All three combine to slow down investment and that is being reflected in the lower industrial production rate.
Q: Since you raise the issue of coal. There is a debate at this point in time on whether it was right for the government to actually issue a presidential directive to get Coal India to sign a Fuel Supply Agreements. You have got minority shareholders saying that this is the government’s way of playing big boss and it doesn’t really care about the minority shareholders. The government is saying we are thinking about the country and the needs of the power sector, which is in need of dire reforms. As an industry leader how do you view this and it is a tough balancing act for the government, is it not?

A: Yes, of course and the overall interest of the country should come first. If you have an issue on whether a company should be working in the overall national interest then you could call into question whether government should own a business that is separate. So as long as Coal India is a government company, Coal India is duty-bound to ensure that a larger sector of the economy, the power sector is well served.

So again, I am not an expert on either power or coal, but it is imperative that we solve the issue of acute shortage of power as soon as possible and we need to solve other industry problems. Aviation is not doing too well. Real estate is not doing too well. Again permissions are very slow and land availability has difficulties.

We have asked the government that 50 major projects and 20 major industries, which have some serious problems, let industry and government sit down, get into the details and resolve it across the table. There are many other industries for example one of the industries we operate in FMCG, we don't see any problems. We don’t think government needs to do anything very separate. There are some minor issues here and there which can be resolved.

Q: You raised the issue of FDI in aviation as this being a priority for the government. But if I want to ask you it is stuck because there are lobbies within the aviation sector. One lobby wants the government to open up whereas the other lobby wants the government to stay closed. The government seems to be caught between, which lobby it wants to pander to at this point of time. So if the government is not thinking about the country neither is corporate India, it is self interest, isn’t it?

A: One shouldn’t pander to any lobby. One should take independent advice on a business and CII is in a very good position to give independent advice to government on various industries.

Q: How independent is advice really?

A: Yes, it can be very independent because we also have our councils in which various views are expressed and then a decision is taken as to what would be good for the economy.

Q: Is corporate India also guilty of holding up policy decisions that would be good for the country because of self interest? Whether it is gas or aviation corporate India has come in the way of policy decisions being taken?

A: They shouldn’t. So, I am not saying that every member of corporate India has behaved perfectly. By and large corporate India has been disciplined. If there are any segments in corporate India, which go for their individual interest more than the national interest then that should be not in my view.


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