The surge in COVID-19 cases and resultant restrictions may have heightened anxieties about the nascent economic recovery. But CII President andMD & CEO of Tata SteelT V Narendran is sanguine about its overall impact. Narendran believes the industry is better prepared this time with safer workplaces and vaccination cover. He however cautions against “sudden disruptive actions” from Central and State authorities while finding a balance between lives and livelihoods. Excerpts from interview:
How do you analyse the impact of the Omicron-induced wave?
As Industry, we are very watchful while the number of cases are mounting.But there are protocols for our offices and factories. We believe that our workplaces are much safer and we are better prepared. While the spread is fast, we can also see that the intensity of this variant is milder than what we have so far experienced.
We should not take any sudden, disruptive actions. Whatever steps need to be taken should be planned and coordinated between the Centre, States and local authorities. The first and the second wave had significant impact and it is imperative that we find a balance between life and livelihoods so that supply chains are not disrupted and the economy can continue to grow at its pace.
What has been the impact of Omicron on the economic rebound so far?
Omicron has dampened the sentiment a bit. But it has not derailed the economic rebound. We need to handle it well and although it is early days yet, we hear that it will come and go very fast. It’s important that we manage the next few weeks very, very carefully. If we do that, we could be back on track very fast. We need to take all precautions at the individual, industry, government level without overreacting and disrupting the economic recovery. Finding the right balance is very important. We have learnt from the last two waves and hopefully, we can manage better this time.
What should be the immediate focus areas for the Government and the industry?
We need to ensure that consumption-led growth does not get further derailed by the pandemic. It has impacted household incomes and expenditures in the last about two years. We need to make sure that the consumer sentiment recovers as quickly as possible. Whatever actions we need to take, we should... like continuation of MNREGA till demand returns in the lower socioeconomic strata. After the first wave, our rural-led growth was strong. After the second wave, agriculture has been strong but if you look at incomes, jobs, there has been a fair amount of uncertainty after two waves of COVID-19 and household expenditure has increased. So our focus on MNREGA and similar programmes should continue.
In a stratified society like India that has structural inequalities, don’t you believe the State should have a much larger role and spend more on health and education to tackle this?
In India, it is not only the Centre that has to play a role. There is a role for State Governments and there is a role for the private sector. Recent initiatives on health are encouraging but our overall spend has to further increase. The CII always felt that Government expenditure on healthcareshould go up. It is going up. Today as a country we are spending just 1.3 per cent of our GDP towards health. We should look to take it to 3 per cent.
We should also keep improving the quality of education and spend more. If the fiscal deficit is under control and taxes are better than planned, then we should focus on education, health and infrastructure as key areas to work. That will also help us from a consumption point of view.
What are the main expectations from the upcoming budget?
Budget must continue to focus on infrastructure as it will have a huge multiplier effect on demand,continue to give us policy stability and ease of doing business and bring down the cost of doing business. There has to be policy stability at both Central and State level. These are critical to encourage investments. On taxes, the Government should look at sectors such as mining where tax rates are high. Mining is a sector with a potential to create employment in some of the poorest parts of the country. Also keep simplifying GST. On taxes, we are happy with the direction in which the Government is going. CII also feels that there is no case to raise the effective customs duties from the current levels.
Do you think policy stability is a possibility in a polarised country with a very intense level of centralisation in terms of central policy-making in the last seven years?
What all political parties agree is that there needs to be employment. If you want to create employment, then you need policy stability otherwise how will investments come. That is the reality that we all have to deal with. Either you go to the government for jobs and the Government can only create that many jobs. If you go to the private sector for jobs then it depends on policy stability. It is in the interest of the centre and states to find a way to give that policy stability — ultimately it helps get investments and jobs.
What about economic reforms and where should we move forward?
GST has been a big reform push, formalisation of the economy is increasing, a lot of work has been done. Areas where more work is needed is the power sector where some legislative changes are pending. On privatisation, there’s the example of Air India. Directionally, on privatisation/ disinvestment we are on the right path and from the CII side, we would only like things to move a little faster.
You recently met the Prime Minister Narendra Modi along with select CEOs. Was the meeting on economic recovery or about the upcoming budget?
The meeting we had was part of the engagement the PM had with multiple sections of industry. We talked about vaccinations. I talked about the cost of doing business. The suggestion from CII was about a cost of doing business index which can benchmark different states, help us benchmark India with other countries as we compete with other countries for getting investments. We also suggested that the government should encourage things like self-certification regime and rely on audits if necessary.
What about private investments? Are they coming back?
We should continue to focus on infrastructure, which we have been doing in recent years. Private sector investments are slowly coming back. Capacity utilisation is very good. Balance sheets have been mended and we are seeing private sector investments coming back and it will come in more sectors. Investment-led growth in India which has traditionally been a consumption-led economy is a good pivot and, of course, led by Government investment and I think private investments will follow. Metals and chemicals are coming back in a big way and in steel ( an industry that I come from) as much as ₹ 1 lakh crore of investments are already lined up from big players for the next five years.
India’s merchandise exports are firing on all cylinders. Do you think $ 400 billion this fiscal is doable?
We are well on track to achieve $ 400 billion merchandise exports this fiscal. Exports have been strong across the world. The response to the crisis in Europe and the US has been more material and swifter than the 2008 crisis. As a consequence, Indian exporters are seeing opportunities and capitalising on them. The other factor is many people are looking to de-risk their supply chains and that geo-political issues are driving interest in India. Schemes like PLI have revived greater interest in manufacturing in India and that is helping our exporters.
What about the current account deficit at 4 per cent. Is that a cause of worry? Should the government do something about it?
I don’t think there is great concern on the current account deficit. Our software exports are doing well. Many areas where we can substitute imports and do local manufacturing, we are doing(like mobile phones). We also have a comfortable situation on forex reserves. We no longer have a concern on how we will pay for our imports. Imports growth is also a sign that economic activity is picking up.
What about financial sector reforms? Should we bite the privatisation bullet on banks?
Government should move in the direction of the financial sector reforms it had announced. We need to do that. NPAs have actually dropped. NPAS have not been as bad as we had thought. But we need to wait for six more months before we come to any conclusion. Overall NPA concern is less and less and in many sectors the balance sheets have got repaired. Today, corporates have multiple options to raise money. There is a lot of innovation happening in financial services. I don’t know if big banks are as important as they were ten years back. One should look at sectors and how the value pool shifts and this whole ecosystem will move to a technology driven future. Moving in the direction already announced will be the right approach.