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Tamanna Inamdar: We are talking also at a very interesting time when India is going through its own set of challenges some domestic, some as a result of the global climate so let me start with a very broad question. Do you think the $5 trillion economy target is achievable and it is more than just a number?
Harsh Mariwala: Let’s start by saying that I am not an economist, so do not ask too many complex questions about the economy which I am not qualified to answer. I can give my viewpoint as a businessman. The question of whether such a target is achievable, first you have to look at the likely growth rate. In year one, we are at a much much lower growth rate than the projected rate of about 9% or 10%. So, the likely growth rate in the balance four years has to be around 10% to 12% to achieve the target of $5 trillion economy.
What I am looking at is an aspirational goal and I think the Prime Minister has said that this is an aspirational goal. As long as that aspirational goal can spur symptoms of increasing the growth rate from 5%-6% to 8-10% and we fail to achieve that $5 trillion goal and fall short by say half a billion, then, in my opinion that is okay because you are increasing your growth.
The key thing is to increase the growth rate to a higher percentage compared to what we have been able to achieve in the recent past and that is the key message I am taking.
Tamanna Inamdar: Why it is interesting to get your perspective is because the way Indian business grows will be a huge engine of reaching a $5 trillion dream or a greater economic prosperity. And Indian businesses have gone through tough times. FMCG is also hurting. Over the next year or so, do you see the situation first worsening and then improving or are we at the brink of a change?
Harsh Mariwala: I wish I could answer that question because if you had asked me this question six months back, I would have said next quarter will be better and I think to some extent all businessmen have some sense of wishful thinking. Okay, the crops are coming in, may be two quarters back the elections were over, lot of funds have gone into the hands of the consumer but that sadly has not had its positive impact.
Again, hope is the monsoon will get harvested; unfortunately some rains in the recent few days have impacted some crops in a few states but nonetheless, on the national level it’ll be better. There should be some positive impact of the steps the government has undertaken but when will all this occur or will there be further downturn I do not know. July-September quarter has been the worst for the FMCG sector compared with the April-June quarter in which the GDP growth rate was 5%. My hunch is that based on what I have seen in terms of demand — a lowering of demand in July to September quarter compared to the earlier quarter — the growth rate will be lower than 5%.
Tamanna Inamdar: What is your reading on the drop in consumption? This is something people debate about and say maybe it is sentiment which is driving people in your space to buy smaller packet sizes or change brands. Is it more a question of sentiment or are we seeing real pain in the rural space that is driving this drop in demand?
Harsh Mariwala: I would say both if it comes to essential goods for daily use. I do not think the sentiment would play a big role. I do not think it is so bad that people would stop buying say toothpaste or hair oils or things like that. There is a real issue in terms of demand and consumption and no with disposable income in the hands of the consumer. At a higher end, the decision could get impacted by the mood of the consumer but not day to day necessities.
Tamanna Inamdar: The fact is that the government of the day has been pretty ceased with the situation, there have been a slew of steps and the biggest one for the corporate space is the reduction in corporate tax. What is your assessment of the move?
Harsh Mariwala: A lot will depend on what was your earlier tax rates and what are the kind of benefits you are getting. At companies, where the effective tax rate is likely to be lower than 25%, they may continue on this front but there are many other organisation where the effective rate was upwards of 30% so they may move to this lower tax bracket. Over the next three to five years, everybody would be in the same bracket.
It is a good move but was not expected. The good part is that it is simplifying things. There were a lot of exemptions which earlier the corporates were trying to get and many of them were not sound. Some of the decisions which the corporates were taking to get exemptions will cease and that is a good thing. I think corporate should concentrate more on what is good for the business and arrive at sound decisions. The simplification of tax and reduction in tax rate is a good sign to be given internationally too. People were not expecting that this will be done but the government has taken the step and it is welcome.
Tamanna Inamdar: How much of an impact has this had on sentiment for businesses because that was the purpose of lowering this corporate tax?
Harsh Mariwala: The sentiment, when it was announced, was positive. Nobody had expected that this will come in. So, yes, it has had a positive impact on the sentiment but will it lead to revival of the economy in the short term? I do not think so.
For revival to occur there has to be higher disposable income in the hands of the consumer and for that to happen the businesses at a fundamental level have to do well or the agricultural sector has to improve or the services sector also has to rock.
Only consumer demand revival will lead to improved sentiment because you will start seeing increase growth rates whether it is for FMCG products or for auto sector or consumer durables. Unfortunately, at this stage the government doesn’t have freedom to lower the personal income tax rates because their finances are tight and the fiscal deficit may not adhere to the original target; but it still has to be controlled. I doubt whether the government will take that step unless they come up with some innovative steps to increase their revenues. I strongly feel that there is a strong need to bring in innovation.
There is so much betting taking place whether be it cricket or elections. And it is a great way to tax that and make it legal and earn an income. There is betting on races currently which is legal and they get some taxes but a reasonable tax rate on betting would increase their income. Can we think of monetising so many assets the government is holding. So much land, whether it is railways or public sector, is worth billions of dollars? Can we think of far more aggressive privatisation plans? All these things are enough opportunities for the government to raise money. I think it needs a strong will to make that big step happen since there will be a lot of opposition.
Tamanna Inamdar: Yes, but the mandate is there…
Harsh Mariwala: The government has majority but somewhere there is some degree of hesitation. This is even when it comes to labour reforms. Suppose, I put up a capacity where I recruit 300-500 labours. Tomorrow, if the business tanks and I am not allowed the flexibility of dealing with that labour, I will never put up that capacity in first place.
It is because of this I will always have a fear of what if my business sinks. The businesses need to improve fundamentally in line with other countries. The spat between China and the US is throwing a lot of opportunities at the global level. Who all could be beneficiaries? It is countries like Vietnam, India and even the neighbouring Bangladesh. We have to look at it from an opportunistic point of view and take some steps. It will call for some hard decisions. It will call for a few decisions, which some people may not like. But if you take compromising decisions, we will not be able to grow and reach the $5 trillion GDP mark.
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