Interview | Job creation through MGNREGA more effective in raising consumption than temporary direct income support : CII President T V Narendran

The stimulus has to be focused and sharp. There are many companies or sectors who have come out of this crisis quite strongly such as metals or steel since globally, commodity cycle is positive. I think those are not the sectors which should be provided support because they can take care of themselves. Instead, support should flow to the MSME sector which has been struggling since last year.

Some of the credit schemes should continue. Their profitability has been hit hard, because many of them have fixed price contracts along with volatile input prices and falling consumption.

Among the touch-based sectors, for aviation we have made a specific recommendation that Aviation Tariff Fuel (ATF) be brought under GST, so that companies can claim credit. These are big companies but since ATF is a big part of the costs, oil prices going up, and demand still down, they are obviously in a lot of trouble. We need support for the hospitality and restaurant sectors because they are big employment generators.

Yes, the larger ones may still survive, but the smaller ones are struggling. How many restaurants can survive being closed for a year, or even if they're open with only 50 percent of the capacity.

What are the other specific ways you think the government can raise consumption in the economy right now?

We have recommended that a 2-3 percent cut in GST for consumer goods. Most people's budgets are dented because they spend more on medical expenses than they had planned to. We need to help people for whom consumption is a big part of their spend basket. We also need to increase the allocation to MGNREGA. If we can increase the allocation for it and make sure productive assets are built, that's one way of making sure money flows to the people. Other schemes like the Pradhan Mantri Awas Yojana should also be focused on.

It's more about a pointed approach rather than one big check for industry. I don't think we are asking for that. We are instead saying, focus on the sectors which need the support and design it in a manner that helps them and makes sure that money is efficiently used.

Experts, economists, and even the Ficci president has raised the demand for a minimum income support scheme for the poorest sections of the the population who have lost their jobs. Do you think that should also be part of the stimulus package?

The principle behind this idea is good, that is to help people below the poverty line. But I think the administration of it needs to be thought through in terms of what is the impact and whether it is sustainable. It's important to create jobs through MGNREGA since that also creates productive assets and adds value to the country. For the urban poor, we need to find and support the sectors from where they have lost jobs.

What I have often seen is that having a job changes people's confidence, and mindset. Income coming in every month, triggers spending. But if someone doesn't have a job and receives some incentives for some time, they aren't sure of how long it will last.

So, people may be more prone to saving. We need to think about how to make the best use of the money because our population is large. We also need to do it sustainably. It should not be that it is attempted for a year, but then the next year the plug is pulled. That will not work.

You have raised the issue of vaccine hesitancy. How serious a challenge is it ?

In rural India, we are not just witnessing vaccine hesitancy, but vaccine paranoia. We need to communicate better, through the people they trust. It's not about us sitting here and telling them what to do. We need to work better with the local panchayats, the sarpanch. Get them to talk about it, tell, communicate to the people.

I can say this from personal experience, because Tata Steel operates in some of the poorest parts of the country. Right now, everyone says there is not enough vaccines, which is true. But in two months, when you have more vaccines available, and most of urban India has been vaccinated, we will have the problem of not enough people being willing to be vaccinated. CII is working with the government on this problem.

After two successive Covid-19 waves, unemployment has become a exponentially larger issue. What are your suggestions to the government on creating jobs on a large scale in the traditional manufacturing sector ?

There are multiple dimensions to it. How can we get more investments into the country in manufacturing and how the government can spend more on infrastructure. Unlike after the 2008 financial crisis, when the services economy continued to be very strong, services have now been impacted since a lot of them are in high contact businesses.

As manufacturing companies drive efficiency, they will continue to substitute labor with capital. That is inevitable since it is the only way to be competitive.

We need to focus on specific sectors which have a big multiplier impact. Construction is one area because building infrastructure creates jobs across the country, not limited to the urban centers. As the situation becomes normal, tourism will play a big role. India is obviously under exploited from a tourism point of view, both domestic tourism and international.

One of our suggestions involves how we encourage domestic tourism of people who have been vaccinated and are safe.

Finally, in the labor intensive sectors such as textiles we have had limited success. The last sector is electronics manufacturing, on which the government is already doing a lot of work through the Performance Linked Incentive schemes. It's knowledge intensive, skill intensive, capital intensive, and labor intensive, all rolled into one depending on what you're making.

What are your key suggestions to the government on exports in the short term whereby we are seeing major demand from across our large global markets ? How can trade be boosted in the long term ?

In the short term, it should be more about what we can do to help the exporters without falling foul of World Trade Organizaton rules. The government needs to lay out the details of the RoDTEP scheme for exporters to claim benefits. We also need to address the challenges being faced by MSME exporters, who are struggling.

In the long term, there is no substitute for building infrastructure and helping people to export and import. Also, we obviously need Free Trade Agreements across different countries but they need to be done carefully whereby both investments and trade are encouraged. Getting trade without investments doesn't create jobs. We should leverage the opportunity that the Indian market affords, to attract investment, and leverage the capability of the Indian ecosystem to encourage export.

Now that large parts of the economy has been liberalized, what more can be done to pull in more Foreign Direct Investment?

I think we shouldn't be happy with the FDI we are getting. We need a lot more. We have to keep working on factor markets and make it easier for investors to acquire land here. Governments can play a role by creating industrial parks with common utilities, common infrastructure on effluent discharge and approvals, so that investors from overseas can come and plug in. Also, having just one agency to deal with all the issues is important. Indian companies will continue to go through all this challenge, because it's our home market. But we will struggle to get foreign investors who have choices.

On the labor side, while laws are coming in, we need deployment across states consistent with the spirit of the law. Another feedback which we keep hearing from foreign investors is the demand for policy stability, or atleast policy certainty. Foreign investors say if policies remain stable, the cost of operating in India can budget for that in their investment plan. But if it fluctuates, it's very difficult to plan investments. Particularly at the state level, this flip flop shouldn't happen depending on who's in power, because ultimately the state suffers and the country suffers. The sanctity of contracts need to be respected.