FICCI chief expects a positive budget

The president of the Federation of Indian Chambers of Commerce and Industry (FICCI), Mr. G. P. Goenka, says the domestic industry is strongly opposed to further tariff reductions as part of the process of trade liberalisation. ``It is time to worry,'' he says while insisting that industry needs to be compensated through steps like reducing interest rates for cuts in import duties.

In a wide-ranging interview with Sushma Ramachandran, he expressed optimism about coming budget proposals in view of the Government's positive approach in many areas, including disinvestment and privatisation. But he was concerned about the increasing of sales tax by States recently. He said the FICCI was also seeking to launch a nation-wide debate on the need for a social safety net as a corollary to the privatisation process.

Upbeat about economic growth, the FICCI chief expected 6.5 per cent this year. On Non-Performing Assets (NPAs), he opposed the proposal for publishing the defaulters' names as this would worsen the situation. As for corporate governance laws, he termed the proposals as ``hype'' and charged the promoters with running the most mismanaged companies.

On the political scenario, he said industry welcomed stability irrespective of which party was in power. Following are extracts from the interview:

Sushma Ramachandran: What is your overall assessment of the economic outlook for the coming year?

Mr. G. P. Goenka: Even a growth rate of six and a half per cent is well within reach. The question now is how to accelerate it to eight per cent and upwards. And that is really the Finance Minister's challenge. Regarding six per cent, there is no doubt.

What are the industry's expectations from this Government's first budget?

You see, because the Government is talking in this (positive) language, expectations have naturally been pitched very high - in terms of tackling the deficit as well as helping us to restructure, in having a more broad base in augmenting revenue. We are gung ho that pinpricks like the surcharge will get discontinued. The very fact the Government is talking in terms of not taking disinvestment into receipts is an indication that that's how it should have been. To have disinvestment for the sake of disinvestment rather than for raising revenue. And not having revenue targets but disinvestment for its own sake. So all these indications are very positive. I would be very surprised if the budget was anything but positive. All the signs are good. Corporate results are good. The feel-good factor is there, both locally and internationally.

The Industry Ministry is talking in terms of 8 per cent industrial growth this year. Do you agree?

I would not be surprised. To have a 6.5 per cent over all economic growth, you would have to have 8 per cent in industry to compensate for lower growth in agriculture. Exports have picked up in the last couple of months. I would imagine the increase and growth overall will be sustained.

After the Seattle ministerial meeting of the WTO, is the industry worried about liberalisation especially in terms of tariff barriers being lowered?

They ought to be. If they are not, they ought to be. Frankly with duty rates coming down very substantially, it is time to worry. One of our main thrusts in our presentation to the Government is if we have to be compensated, and we have to be, there are certain bottlenecks - interest rates, for example. Interest rates won't come down until deficit comes down. So it is all inter- related. Government borrowings also have to come down. These can only come down if deficit comes down. So that is one of the major areas. We are very happy the Government has shown willingness to go in for privatisation of power. The action which the U.P. Government has taken with full support of the Centre is unbelievable. It will send right signals throughout the country. One realises one cannot correct an evil in one single day but all these are steps taken for the good.

You said industry should be worried about trade liberalisation. Are you worried about QRs (quantitative restrictions) going?

QRs have gone. It is a fact of life. Again we would like to compliment the Government. When it comes to developed economies, textiles is outside the WTO ambit, not to be discussed. When it comes to agriculture, `We'll see, we'll discuss''. This is double-talk. The Government has seen through it and started tackling it which is commendable.

But frankly, one area of major concern is sales tax equalisation. That is important because of the VAT. The VAT is WTO-friendly whereas industry is bearing many taxes without the WTO recognising it like sales tax and octroi. If those get merged into the VAT, life would be that much easier. But unfortunately this action in upping the sales tax rates is counter-productive. VAT coming on April 1, 2001 is therefore crucial. Because the VAT is recognised.

State Governments are bankrupt so they have taken this as an excuse. I certainly hope some action will be taken.

There has been a controversy over NPAs and the CII's report suggesting closure of some banks. What is the FICCI's view on this issue?

We openly came out against it. We maintain that the closure of banks is not an answer to NPAs. The two are totally unrelated. There are two types of NPAs - one, where there is deliberate siphoning or mismanagement. Take whatever punishment is required in such cases. But there are curtain industries which are going though a down turn over the last 3 years and as a result these accounts are NPAs.

I think there has to be some differentiation there between a person who has a genuine problem and whose industry has gone though hell. But in deliberate cases - you are not resolving the problem by printing it (the names of defaulter). If names come out, nobody is going to give loans to those companies and unless money gets pumped in, there's no way the company gets revenued. So its a vicious circle.

Do you think domestic industry still needs tariff protection in some areas?

We have very strongly recommended that import duties should not be reduced. Conditions are not conducive. If that is done, other measures must be taken. But not until then.

We are still not attracting enough foreign direct investment. What do you think needs to be done?

I think the atmosphere is right. I think foreigners were not really believing that the Government is serious. They have acted on insurance and disinvestment. If Modern Foods gets disinvested today, if one more case gets on the fasttrack, then everyone will start believing that India means business. So that is an area which we must focus on.

People keep talking of second generation reforms. Which, in your view, are these areas?

Now everything comes under second generation reforms. That is the more difficult part. For example, disinvestment and privatisation. They tried one in U.P. and all broke loose. But dovetailed to that they will have to start working on a safety net which we are trying to support. You can't have people on the streets. It is not acceptable in India.

We are trying to start a debate and spread the message. Because we genuinely believe that unless a safety net is in place, labour reforms are not possible. We are planning a series of meeting with MPs and union leaders - where everyone can debate. We'll put forth our point of view too.

What is industry's assessment of the current political scenario?

We seem to have entered an era of a stable and good regime. But we in business are not really concerned about who governs us as long as the governance is right, which appears to be the case now. Frankly, we won't be taking public postures on any thing. Stability is what matters.

What about the importance of good corporate governance?

It is more hype. By making laws and making it compulsory, (good) corporate governance has not come. Everyone is aware that unless you have proper corporate governance, the share market would do well. What is being suggested is converting it into a law but making it compulsory is not there anywhere in the world. People are already trying to implement what is required.

Making it compulsory does not help. That's our view. Yes, those who claim this should be put in place, they represent some of the most mismanaged companies in the country. I can assure you in such cases. But they have public relations and a balance sheet and the CII or SEBI code is being fully implemented. It is unbelievable.

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