Sunday Interview: The impact of any protectionist policies should be minimal'

Pankaj Patel, president of the Federation of Indian Chambers of Commerce and Industry (FICCI) and chairman and managing director of Zydus Cadila, in an interview to Pawan Bali talks about the Union Budget and growing protectionist tendencies around the world.

How is the industry seeing the Budget presented by finance minister Arun Jaitley?

Budget’s main focus is to stimulate growth. There will be an increase in demand because the government is investing in infrastructure. Simultaneously, cut in corporate tax rate to 25 per cent from 30 per cent for the small and medium enterprises (SMEs) will help in promoting employment. Rural income will increase as the Budget has a series of relevant investment schemes. Increase in funding for the health ministry will attract a lot of investment in healthcare. So overall the government is proposing to spend a lot of money across different industries, which will enhance demand and higher demand will help industries to sell more and fuel growth.

Are you disappointed that corporate tax was not cut for larger firms with revenue over Rs 50 crores?

Finance minister said that corporate rate tax cut for SMEs covers 96 per cent of the industry paying taxes. We are hopeful that the government will address the issue relating to large firms. The government intends to reduce corporate taxes to 25 per cent by 2019-20, a promise that Mr Jaitley has given in his first Budget speech, and we are confident that this promise will also be kept.

Mr Jaitley has set a target of fiscal deficit of 3.2 per cent of GDP for 2017-18. It is down from 3.5 per cent in 2016-17 but higher than three per cent which was the target. Your thoughts?

It is good as overall fiscal deficit will fall (from last year’s figure) significantly, and we are near our long-term goal of three per cent deficit. I am sure we will be looking at three per cent fiscal deficit target next year.

Do you think that Mr Jaitley should have used “escape clause” given by N.K. Singh Committee and set fiscal deficit at 3.5 per cent for 2017-18 also and used the additional headroom to boost growth?

It is prudent not to take full benefit of the proposed escape clause; 3.2 per cent is a very thoughtful target. They have not stuck to three per cent and have taken extra money whatever they required, and not extended too much. This will ultimately help our economy. Lower the fiscal deficit, stronger the economy.

The current Economic Survey estimates demonetisation to impact GDP in 2016-17 by 0.25 percentage points to 0.50 percentage. Do you see its impact spill over in 2017-18?

I don’t think so. It is a one-time impact. As the money is going to be available in the system, businesses will grow, people will earn money and spend money and thus the overall demand will increase. People hoarded cash and cut spending when sufficient cash was temporarily unavailable. But people have resumed spending. For April 1, 2017 to March 31, 2018 we will no longer feel any impact of demonetisation. We will see the growth usual in the next quarter. We are already seeing that the demand is becoming normal in many formal sectors of the economy.

After demonetisation is there any fear of tax terrorism? The government has already said that it will be sending 18 lakh notices to people who have made huge cash deposits during demonetisation.

Mr Jaitley clearly stated in his Budget speech that the government is going to ensure that there is no tax terrorism. In a meeting recently, he further clarified to us that these are not notices but letters. They are giving opportunities to people. It is a positive step. Until now we only got notices from the tax department. As an industry association we will support people who comply with tax rules. We are not here to worry about people who are not tax compliant.

Private investment is down, when we will see its revival?

Private investment depends on whether or not production capacity is full. Usually a company will sets up a new manufacturing plant when existing plant capacity utilisation reaches 70-80 per cent. Once the demand picks up the capacity will be utilised and you will see private investment coming in. We expect significant increase in demand this year and that would propel new investment from the private sector.

There is fear of growing protectionist polices around the world specially after President Donald Trump and Brexit?

This is an area of concern but the situation is fluid. These are uncertain times. We have suggested to the Government of India that they should form a high powered committee representing senior government officials and a few leading industrialists to discuss, debate and be prepared for the impending challenges. I believe that our diplomatic relationships globally are unique and the impact of any protectionist policies should be minimal for India.

There are concerns in Indian IT and pharma sectors on Mr Trump’s policies. You are from pharma industry how do you see these developments unfolding?

From pharma industry perspective I can say that we mostly export generic drugs to the United States and we believe the impact of what Mr Trump is talking regarding this sector would be minimum.