In a special interview to CNBC-TV18, Commerce Minister Suresh Prabhu said the goods and services tax (GST) has been a game changer for India.
He said we must thank Finance Minister and the Prime Minister, and even the GST council for bringing change to the tax regime for exporters. Now, one may see an upward trend in exports, he said.
The response of the government to the industry needs or requests have been really quick. All this shows the attitude, approach of the government towards business and industry and their intent to make the life of tax payer easy.
However, there needs to be more time to assess export growth trends but the signs are very encouraging, said Prabhu.
Export is the biggest driver of growth and employment and so we are supporting top 10 items and identifying new items for export support, he said.
We are also identifying new destinations for Indian exports, and identifying new service sectors for export promotions, he added.
He is confident that India is poised for growth because of GST and expect exports to derive the growth.
Talking about the proposed Industrial Policy, he said they were working with top global experts on this and would identify 5-6 emerging industries under this policy.
He plans to promote exports in a significant way because it has a multiplier effect, said Prabhu.
Below is the transcript of the interview.
Q: If I can start by talking to you about the GST, because on November 10 the GST council met, it was virtually a mini Budget with a significant rate revision being undertaken by the GST council. The view now is that we are moving towards the collapsing of the 28 percent slab with the 18 percent slab. Industries like cement, paint etc have probably already reached out to you seeking redressal, they want to be in the 18 percent slab. They are still in the 28 percent slab. Given the revenue implications, do you believe that they should still have any hope of a rate revision?
A: You must look at GST as a real game changer for India. The Income Tax Act was made in 1961. Despite the fact that it is there for almost 56 years, how many times you have amended that act? That means that despite the fact that the act is there in the statute book for so many years and despite that we needed amendments because we realised something or the other. GST is not even six months old. So, what we need to do is to understand the implications etc.
There are two elements to it – one is the rate of tax, another is the regime of tax. As far as exports are concerned I must thank Arun Jaitley and Prime Minister Modi and also the GST council, they have been able to bring a radical change in the way the taxes are collected or rather IGST etc are done, this is a very significant change. So, one is the regime change. The problem for exporters was, that their working capital was getting blocked.
Q: Has that been rectified? The refund process has just about started. Our last conversation with FIEO seemed to suggest that there was a sum to the tune of Rs 65000 crore that was blocked by way of working capital. What is the feedback that you are now getting, now that the refund process has started?
A: We took up that issue and I am really thankful to the finance minister for being so responsive. Immediately they acted and on October 8 they took the corrective steps. It has been significantly improved.
That is what I was saying, that something or the other will keep coming. The important thing is the responsiveness of the government. Have you ever responded to any complaint, any ideas that are emanating from the industry so quickly? That is why I was giving example of Income Tax Act. Despite GST being so young, just six months old, despite that we are working on so many changes. That shows the attitude of the government, the approach of the government to business and industry and to make sure that the life of taxpayer is really made easy and that is the whole purpose of doing this.
Q: Let me talk to you about exports because the number for the month of September was very encouraging. In fact we saw almost 25 percent growth in export year on year. The question now is, is this sustainable, what is the feedback that you are getting? We should be about a couple of days away from getting the latest export numbers but give me a sense of what you are picking up?
A: Export means somebody has to buy from you, otherwise you cannot export. So, there also should be a demand in that respective market for that buyer. Luckily we have been seeing really good signs, it’s too early but really good signs of market now becoming better. So, it is not just one commodity, it’s across the board. If you take 10 export items that we export not just commodities, they all are showing some good signs including engineering exports. However we really need to work on it.
We are seeing a good encouraging sign of showing an upward trend in exports and we would like to maintain it, so we are also taking a number of steps to make that happen.
Q: Do you think this 25 percent kind of growth number is going to be sustainable? What should we factor in?
A: I don’t think 25 percent is right, we will wait for some more time to come. There is no point just giving the numbers because we had given some numbers earlier which we were nowhere near that. So, we will wait for some time to actually assess the situation on the ground, then come out with a trend. The trend is too early to judge but at the same time it is definitely showing an upward trend. That is what I can say for the time being. What percentage, etc, wait for few months to go so, so that we will clearly know.
Q: What is the strategy that you are working on at this point?
A: We are working on exports in a significant way because we realise that that is the biggest driver for growth, it is the biggest employment generator and this is also the backbone for even large industries to grow because when small little exporters contribute, they contribute to domestic market as well as to exports.
So, we are doing 2-3 things. One, support all the top ten items that we export and we will do that completely. I had a detailed meeting with all export promotion organisations and we have understood the problem and we are trying to take corrective steps for that.
Second, try to identify new items for exports. That is the process which is on. We will tell you very soon as soon as we identify.
Third, where can we export? There again our strategy is very simple. I went to Latin America, Cuba, Panama, why? It was because in geographies like those there is a tremendous scope. So, talking about only 10 top markets of India where we are already doing well, where we have already got a relationship, we will protect those markets but that is not enough. We need to explore new markets otherwise saturation will come after sometime and it will not grow. So, we are identifying countries where even small little share of exports can significantly - aggregating to all the exports will be significantly higher. So, we are working on that.
Also we are trying to find out service exports. It is something which has never happened before, not happened in the sense on the scale. Not just IT, we are going to into different kinds of services, we are identifying those services – like home care service which also has a great potential. So, we are working on that.
Also what we are doing is, countries where India has invested a lot of political capital, where we have invested even human resource capital, geopolitical capital, strategic capital over a period of time, our relationship with those countries is very high in terms of geopolitical relationship but economic relationship is low. So, they are the right candidates for engaging with them for developing economic relationship because their receptivity will be very high because they already accept our partnership. So, we will take that relationship forward.
So, we are working on geography strategy, product strategy as well as working on non-goods strategy which is the services.
Q: So a new foreign trade policy on the anvil?
A: That, we are actually going to have a review of that. In the review we will give a proper strategy with some of the points that I mentioned and also more. The idea would be that we will create a strategy, we will support the industry by doing that, we will leave it to the industry to actually make that happen. So all the export promotion council, FIEO for example, is actually working with us very closely. We are creating a market strategy. You will be surprised, we are doing something like a businessman, when he exports something, he prepares his business plan. But for an export promotion council, also you must prepare the same business plan. So I told them to prepare a business plan for each export promotion council.
FIEO is doing market research for each country. For example, just now, I had a talk with Canadians. So I said, we are happy that our relationship is growing. I said that relationship is growing compared to your historical numbers. What about the potential? Canada, being one of the G7 countries has a huge potential to grow. Potential-wise we may be still very far from realising it. So, we are working on both to prepare a strategy as well.
Q: Since we are talking about strategy for exports, let me also ask you about the strategy or the thinking as far as the rupee is concerned. Today at 65.43 per dollar, at a one-month low. I know that there is divided opinion even within government and outside of it as well on whether it is overvalued, how should we address the rupee, what is your own thinking on this?
A: I cannot have my own thinking.
Q: Let me ask you what is the government's thinking then?
A: It is only the government's thinking and that is something which I will leave to the Finance Minister. But, I will just talk theoretically. Weaker currency always helps exports and therefore, if interest rates are low, if the currency is low, it will help the exports, but I am sure the Finance Minister is seized of this matter. Prime Minister is certainly concerned about increasing the exports of India. So they will be able to tell you exactly how it should be. But really speaking, India is now poised for growth for sure. So many structural changes that have happened including GST, including demonetisation which has happened in the country will help us put India into higher growth trajectory. Export will be drivers of growth and therefore, we had requested and there is a report which is being prepared by the Niti Aayog on exports and employment. We are wanting to link exports not just as an economic activity, its potential to encompass in itself the ability of promoting jobs which is a social issue. So I think socio-economic development can happen in a significant way through exports.
Q: Let me ask you about crude prices and given what we are seeing at this point in time with crude prices moving back up closer to USD 60 plus, in fact USD 65 per barrel, how much of a concern is this now for the government? Have you had conversations with the Ministry of Finance for instance on this issue?
A: One is, do you have control over international crude prices? No we do not. So this is something which we have to accept as a reality. So how do you deal with this volatile market? One, we already have a mid-term strategy in place that is to diversify our energy basket to make it less reliant on fossil fuel which is largely imported and therefore, that is one part of the strategy.
Thirdly, if prices go up, then we will have to live up to that reality. So how do you work on that? So I think our domestic exploration that is what the ministry is working on. So all that put together dealing with reality as it is, but also making sure that over a period of time, we will be able to diversify our energy portfolio in such a way that we will be less reliant on imports.
Q: Let me ask you about the point that you just mentioned that countries where we already have a strong economic partnership as well as political engagement, you would like to further that relationship forward. You have just returned very recently from your first visit as Commerce Minister to the US. I know the contentious issues that we talk about often were brought up again. From the Indian perspective, the visa issue was brought in. Do you have any hope that there could be some positive breakthrough on that because the US sees this as an immigration issue, it does not see this as a trade issue necessarily? So should Indian IT have any hope once again as far as the visa issue is concerned? And secondly, the US raises the issue or US companies, the USTR has raised the issue of price caps. Is there the possibility of some sort of review? Is there a thinking on trying to get all stake holders involved to address this issue?
A: On issues from our side with the US, firstly I must tell you that despite the fact that there has been a lot of voices emanating from the new administration about the trade relationship with several countries including India, the talks were extremely cordial and extremely good including the statement made by the Commerce Secretary when I met him. He said, we do not want to reduce the trade deficit by reducing exports from India, but by exporting more to India. That is very positive comment and we welcome it.
Number two, on the visa side, we have explained to the US that Indians coming to US has helped the US economy significantly. One class of people who go to the US are students, that has also helped their economy. Second class of people who have gone there are the professionals - have naturalised there and that has helped US economy because if you look at the ethnic group, Indian ethnicity group is one of the highest earners in terms of professional category. So that has helped.
Thirdly are these people who go there for short duration like the US visa. So we said this is actually going to hurt the US economy over a period of time because this has helped them.
I will tell you something very interesting. Alan Greenspan, one of the former Chairmen of the Fed, had made a very interesting statement once. He said the US economy's expansion which was unprecedented, which happened for a long time, was also on account of productivity gains. Where does productivity gain come from? Among many other things, is also the use of communication, information technology in the US economy and one of the contributors, I am not saying the only contributor is India. So therefore, it is actually helping the US economy. So we explained to them properly. They also heard very patiently, so I hope they will working on that.
On the other side, on the Indian side, we have actually made some progress on export of grapes, export of mangoes which have been very positive in doing that. On the US side, price cap was one of the issues that they raised. We explained to them that we have a National Pharmaceutical Pricing Authority (NPPA) which looks into these issues, so we said we will pass on their concern to the NPPA. We are also going to also have the meeting of the US companies who are raising these issues with their relevant authorities in India. So we are working on that.
Q: One of the other issues and you said that the US Commerce Secretary raised the issue of the trade deficit. Did they also specifically raise the tariff issues there because President Trump in a few of his speeches has called out, not specifically India once or twice, but the issue of high tariffs in countries where the US does business with, he has raised that issue.
A: In fact, as I told you, to be very precise, any country which has a trade deficit with other country will always raise the issue. So we raised the issue with China and US has the same issue with China. China has a huge trade deficit with US. China has a huge trade deficit with India. But he said very specifically, considering probably our relationship with the Prime Minister as well as the President of US, that we like to export more to India and therefore, on export, we will definitely work with US.
Q: We have got a WTO meeting coming up. Are we likely to see any forward movement on WTO agenda specifically when it comes to agri-subsidies? And do you believe there could be additions to the WTO agenda this time around?
A: One is, first of all, we just had a mini ministerial before the WTO, they did it for the first time probably because last time they had little difficulties in arriving at a consensus later on. So they did in Marrakech which I attended with 30-40 other ministers from different countries, which the WTO secretary had chosen. We had a very good dialogue. We have put forward our concerns. One is on public stock holding, we said we will not agree on any condition which will put any restrictive clauses on India. Number two, we are very keen on market access to agriculture products in the developing countries so that they should reduce subsidies. We also said that we should not keep raising new issues in WTO forum unless we resolve the other issues. We are very keen that our Doha development agenda should not be just abandoned, it should be taken forward. And most importantly, something which is so important for not only India, but all the developing countries is that multi-lateralism must prevail.
There is some talk that what is the use of WTO? We feel strongly that WTO can be reformed, definitely. WTO rules can be amended for sure. But, WTO as an institution, multi-lateral platform for discussing trade issues cannot just be wished away with or abandoned. So therefore, we are very keen that multi-lateralism prevails. Knowing from the ministers as well as the undertones, what is happening, I do not think we should expect miracle in Buenos Aires. At the same time, what is most important many times is to protect your own position which we will do very strongly.
Our Prime Minister is certainly keen to ensure that sovereignty of India lies in the fact that we protect the interest of each and every citizen of India. So whether it is farmers, whether it is small traders, whether it is agriculture as a sector or whether it is trade and services sector, we will definitely try to protect that and therefore, we will go forward.
Q: We are almost in that phase where the countdown to the Union Budget. Of course, because of the GST, a lot of the indirect tax action has moved to the level of the GST Council. But what would your key recommendations be for the Union Finance Minister and what would you priorities be now as we end this calendar year and start the New Year?
A: I will be very happy and therefore, I am going to take up with the Finance Minister is that, we must promote exports in India in a significant way. What you give to export is really not a subsidy, it is an investment because that promotes a strategic interest. When you export something outside India, you also develop some economic relationship in that particular country. That builds up bridges with that particular country. It helps domestic economy significantly. So I will be very happy and I will be requesting the Finance Minister that try to do as much as possible for the exports.
Q: What would the specific requests, interventions be that you would like?
A: That specific request I can tell only to the Finance Minister. If you can consider my request, I will tell you, but the request will be considered by the Finance Minister, so I will have to talk to him.
Q: But just to give us an understanding of what the thinking is.
A: I will tell it to Finance Minister. When he announces it, you will know what was the specific request, I am sure he will announce it in the Budget.
But I am just saying as a strategy, India must promote exports in a very significant way. It has a great multiplier on the economy, it has a great advantage and also another thing which we must very clearly appreciate, when we export something, who is manufacturing it? We are manufacturing in India. We are exporting it, means the market there is accepting your product. Automatically, you are benchmarking your production capacity and quality to global standards. So by exporting, you are actually helping upgrading India's capability of manufacturing. So I think I am sure Finance Minister will do it and of course, I am sure CNBC-TV18 will break the news when the Finance Minister announces it.