Sanjay Aggarwal, chairman and CEO of Paramount Cables, took over as president of PHD Chamber of Commerce and Industry at a time when the economy is facing uphill task to recover. He tells Indivjal Dhasmana the next Budget should bring down the maximum rate on personal income tax to around 25 per cent even as eminent economist Joseph Stiglitz called for imposing super rich tax. He says focus of the budget 2021-22 should be on prioritising infrastructure development, inducing flow of investments, creating conducive environment for companies looking to shift their businesses from other countries to India, enhancing competitiveness of India’s service & manufacturing sectors among other things. Edited excerpts:
Q) You are taking over as the President at a very difficult time. How will the chamber help its members recover from this?
PHD Chamber of Commerce and Industry stands in complete solidarity with the government and extends its whole-hearted support, in whatever means required and possible, to help the nation withstand the terrible impact of Covid-19. I must mention that PHDCCI has proactively begun the process of holding Webinars with various stake-holders since the very beginning of the Covid-19 lockdown. We have held over 275 webinars and virtual events over the past six months alone, and submitted over 150 representations to the Government of India and State Governments since the start of Covid-19 in March 2020 to put across various issues faced by its members and the industry as a whole and corresponding suggestions.
I am pleased to share that our PHD members have generously made a contribution of more than Rs 500 crore to the PM CARES Fund, apart from distributing lakhs of food packets, sanitisers, masks, and other personal protective equipment to beneficiaries. Members have also extended help to various State Governments and provided critical care equipment including ventilators to hospitals and medical centers and conducting free mobile health camps for the needy residing in rural areas and resettlement colonies of Delhi/NCR.
Q) Covid has impacted MSMEs the most which is the focus area of the Chamber. What is your assessment of the damage to their businesses?
The past few months of complete lockdown in the country and the closure of malls, gyms, pubs, restaurants, spas, midnight bazaars and mandis, have impacted small entrepreneurs, particularly their revenue streams. The lockdown restricted the demand for MSME products, disrupted the supply chain. impacted raw material prices, increased cost of production and reduced price margins of businesse, thereby impacting the MSMEs’ cash flows. Also, as a result of payment delays, businesses, especially MSMEs, have been facing financial hardships and liquidity constraints, which have led to severe pressure on their working capital management.
Q) What is your assessment of job losses, particularly in the MSME sector?
The pandemic has left a deep scar on employment, with layoffs and salary cuts by various companies. The employment situation, thus, would remain worrisome over a short-to-medium term. According to CMIE data, we lost 121 million jobs in April–roughly 30 per cent of the total jobs. However the total job losses by end September are estimated at just six million, indicating a smart recovery and holding out reasons for optimism.
Q) Has the MSME package, particularly the credit guarantee scheme, helped the sector in anyway?
The credit guarantee scheme was announced by the Government for MSMEs to help increase the flow of credit to them, provide liquidity support and create confidence in the market. This has been the most substantive announcement for Indian Economy’s backbone, the MSMEs, as it has made a significant impact in helping them pay salaries and stay abreast even as the economy as a whole takes time to revive. Till end-September a sum of Rs 1.82 trillion had already been sanctioned to 2.7 million MSMEs under the ECLGS by the banks. I believe the package for MSMEs has benefited them immensely but this should continue with special efforts to pro-actively implement the government’s instructions to PSUs and government departments to release all the stuck payments to MSMEs urgently.
Q) The budget-making process has started. What will you recommend for the 2021-22 budget at this time?
On a broader basis, the focus of budget 2021-22 should be on prioritising infrastructure development, inducing flow of investments, creating conducive and attractive business environment for companies looking to shift their businesses from other countries to India, enhancing the competitiveness of India’s service and manufacturing sectors, enhancing expenditure on twin merits of educations and health, rationalising direct and indirect taxes, among others, with a long-term vision of building Atmanirbhar Bharat.
Q) Do you support a further increase in super rich tax? Eminent economist Joseph Stiglitz called for imposing the tax.
In the current scenario, there is a need to increase the disposable income of people by reforming the direct tax structure. The maximum personal income tax rate should be reduced to 25 per cent to increase disposable income, which will boost demand in the economy.
Q) The Centre has announced a package for government employees to spur demand, which the private sector can embrace. Will you work with private firms to get them on board? What is your assessment of this package — is it miniscule or will it really stimulate demand in the festival months?
These measures will help stimulate consumer demand, boost capital expenditure and push the economic growth trajectory to pre-Covid levels in the coming quarters. The LTC Cash Voucher Scheme and the decision of one time restoration of the Festival Advance to government employees will enhance consumer demand and will boost sales of businesses. It will spur companies to produce more with the deployment of more workforce in their respective businesses. The private sector should also come forward and embrace these measures, wherever feasible for them.
Q) The government is quite fiscally prudent in its packages. Do you want it to spend more?
The ideas behind the recent measures to create an additional consumer spending of Rs 1 trillion in the economy without burdening common citizens with future inflation and without putting Government debt on an unsustainable path, are highly laudable and encouraging. Going ahead, it becomes crucial that consumption expenditure by the government is increased through welfare schemes such as development of social infrastructure and upliftment of the downtrodden, through direct benefit transfers, as these would help in further rejuvenation of demand for goods and services. We, however, request the Government to increase expenditure in the short-term to a much higher level to boost demand in the economy in view of the fact that private sector businesses and consumers are likely to be quite conservative in their expenditure and capex for the near future at least.
Q) Recent high frequency indicators–be it GST, e-way Bill, exports, fertiliser sales, power consumption–showed green shoots of recovery. Do you think the economy is reviving now? What is your projection of economic contraction in FY21?
The trend of recovery in key economic indicators is expected to continue in the coming months on the back of the unlock process in the country with gradual opening of the economic activities. There seems to be general consensus of the estimated GDP growth in the region of -10 per cent as of now, considering the 23.9 per cent GDP de-growth figures for Q1. However, many major investors in the stock markets are believed to be expecting the de-growth for 20-21 to be below 5 per cent, followed by around 10 per cent GDP growth for 21-22. which probably explains the strength in stock indices.
Q) Do you think the economy has entered stagflation and that it would be difficult to take policy measures since any measure to pump prime the economy will raise inflation?
Of late, various economists have been deliberating over whether the economy is on the brink of stagnation, given the scenario of high inflation and historic contraction in GDP in Q1 2020-21. However, sharp deceleration in GDP in Q1FY21 was because of total lockdown in the country in April and May, caused by the impact of Covid-19. Nonetheless, recovery in the deceleration of key economic indicators is already visible in many high-frequency indicators at the end of September such as GST collections, up 4 per cent YoY, exports up 5.3 per cent and manufacturing PMI reaching a level of 56.8–the highest in eight years. We expect good recovery in the coming months on the back of the government’s extensive relief and reform measures, focussing on both supply side and demand side. Further, supply side disruptions are expected to gradually fade in the coming months, bringing down the inflation level. Therefore, it would not be much evident to conclude that the economy has or will enter into stagflation.
Q) The government undertook reform measures through labour codes and farm Bills. However, there is much resentment against them. How do you assess the situation?
The government’s decision to pass three path-breaking and game-changing Labour Codes to cover over 500 million workers from the organised and unorganized sectors and self-employed for minimum wages, social security and other labour welfare reforms is highly appreciable and beneficial for the economy. The three bills would significantly boost new industrial investments, including foreign investments, create tremendous employment opportunities particularly in the MSMEs, and provide a global competitive edge to the Indian economy.
In addition, the three recently introduced Agriculture bills will enable barrier-free trade and significantly enhance farmers’ income along with boosting India’s agri and food-processing exports from the current level of $40 billion to $100 billion in the next five years and enhance the sector’s competitiveness globally.