The growth rate of the economy (gross domestic product or GDP) may dip for another quarter, but it will rise to around 9 per cent in another 18 months, according to Associated Chambers of Commerce and Industry of India (Assocham) President, BK Goenka. In an interview with BusinessLine , Goenka said the slowdown that the economy is undergoing has the government concerned and steps are being taken to arrest the decline and spur the investment cycle. Excerpts:
How are you assessing the growth of the Indian economy? What could be the reason for the pain-points and are they being addressed?
Overall, the economy has slowed down, and I think the government is also equally concerned. In the last six months, the government has come out with a number of corrections and amendments to meet industry needs as far as possible. I think, we are at the bottom of the pyramid. It may be another one quarter more where instead of 5.8 per cent, it may hit 5.5 or 5.4 per cent. But from thereon, it will move towards 6. But whether we can move towards 9, no, that is going to take time.
I think, the effect of these reforms will be seen in the next 18 months.
Will monetary policy easing be enough to spur growth?
Banks are commercial entities. Since the deposit rates are not going down, they are not able to pass on the full gains from rate cuts done by the Reserve Bank of India...The bankers will have to reduce the rate and then only can they pass on the (lower) rates to their customers.
The Government itself is the biggest borrower at high interest rates; (so) they have to reduce the rate of interest. Against the overall rate cut by the RBI (of) around 1.5 per cent, they (the banks) have cut only 0.4 per cent.
It’s not a situation which is really healthy.
How do you assess the borrowingecosystem now?
Post IL&FS and NBFC issues, the pain is still there in the system. There are issues with many other companies. The bankers are trying to do whatever is possible, but at the same time, they also have limitations. So, the overall situation is not conducive despite the government trying everything.
In India, there is no development institution. All banks have become commercial. Where are those IDBI, IFCI and ICICI which could take long-term views? Where is that money for manufacturing?
I can get people to invest for me if there is some new technology and people think that is the future. But a country like India needs manufacturing.
We have been pushing very hard with the government on bringing back development institutions. Otherwise manufacturing is not possible. There is funding available for start-ups, particularly IT-related, but when you talk of manufacturing, no seed capital is available.
Earlier, institutes like Gujarat Industrial Development Corporation (GIDC) would take equity partnerships. Now the government is seriously thinking of coming out with a development institution. We may hear about it very soon.
When can we see the easing of corporate tax translate into more jobs or growth returning? Do you think this will be enough to re-initiate the growth cycle?
It’s a cycle. The first thing is to create a sentiment. The government is listening and wants to see industry do something, but it takes time. Today if I invest and start the production, by the time it comes into the system it will take 18 to 24 months.
This (the corporate tax cut) is an important thing which creates the right kind of atmosphere and incentives to invest in the country. It’s a right and major move where the government has foregone taxes to the tune of around ₹1 lakh crore and given to the corporates. I think within the next 24 months we are going to see a big change or advantage in this.
How should domestic businesses assess the Regional Comprehensive Economic Partnership (RCEP)?
It all depends on how we negotiate the RCEP or any other Free Trade Agreement. As for China, the Indian government is committed towards seeking reduction in trade deficit with it at the highest level and we need to keep seeking more market access in China. With their issues with the US, there seems to be some realisation on the part of the Chinese as well to balance their trade structure with major markets, including India.
Besides, we must also ensure that the RCEP and even the existing FTAs with South Korea, ASEAN, Japan, and others should result in real advantages and true market access for our exporters. If we are not able to take advantage of lower or zero tariff, then we must examine the reasons.