Mythili Bhusnurmath, Consulting Editor, ET NOW and R Kannan, Hinduja Group, discuss GST, GDP data coming out and more macro cues.
Edited excerpts:
The CBEC chairman talking about monitoring the preparedness of GST, said that issues have been addressed and they are prepared for the initial GST rollout. Looking optimistic or do you think that perhaps this would not come on track?
As a government functionary at this juncture, one could hardly be expected to say anything different but there will be teething trouble. One only can hope that these teething problems will be relatively small and will be overcome relatively quickly.
Having said that, the very fact that since the GST is such a mammoth exercise, it is a huge tax reform. I do anticipate considerable teething trouble. In fact, one of the reasons why we are going to see teething trouble is because there are many sectors which are unhappy with the rates and even though the government and the CBEC chairperson have ruled out the possibility of any review at the moment, justifiably so, because we still have not seen the GST in action as yet, it is only correct and only fair that we should give it some time and see rather than react to the rates as they stand today. But there will be a huge impact and there will be huge amount of reaction from the various sectors wherever they feel the rates are not favourable to them, you are going to see such reaction.
It is only fair that the GST and the GST council will have to work out these issues and it will take some time so even if we see the rollout from the 1st of July and in fact not if, when the rollout does happen on the 1st of July, there will be some teething problems but given the fact that the GST council has been fairly successful in arriving at a a consensus, I do hope that these problems will be relatively short-lived.
What has been your reaction – do you think there is a case for a review of the rates announced or do you think we should bide our time and see how the GST actually rolls out, see the impact as far as the production side, the consumer side and as far as tax revenues are concerned and then take a call?
The government has set these rates based on certain assumptions. Obviously, this is a major change in the tax system in India which will go on for another two-three years before settling down. Once they start implementing the rates, it is going to be clear how it is going to affect different industries. Basically, the CBEC chairman also mentioned that it is not cast in stone and they might review the rates at a later point in time. Based on assumptions of what is going to happen is not going to come true. The government is very flexible looking at what could be the modification rates going forward. That might happen once they start implementing it.
As far as the sector where your group is present, what has been your reaction? Are you happy with the rates as applicable to the sectors where the Hinduja Group has a big presence or are you unhappy with them? What are you doing about it in case you are unhappy; if you are happy, of course, there is no problem but speaking of the specific sectors where you are involved what is your reaction to the rates proposed?
As I said, once we start implementing only then we will know whether we are going to benefit or if we are going to see some kind of a setback. At present, we are not able to see how this is going to affect the demand or profitability and plus we are ready as far as GST rollout is concerned. But our supply chain system is yet to come to that level. We have to just wait and see how it pans out and based on what happens, we will be able to comment how this will be beneficial or not.
As far as the group is concerned, have you taken a view regarding passing off the benefits because one has to see whether there will be any benefits at all for the consumers. The hope is that prices will fall and GST will not be inflationary because producers will be willing to pass on the benefits. Has the group taken a view on passing the benefits of the lower taxes presumably if there is a benefit?
In the last few years, our group has been very consumer friendly. If you look at the market share of our group company in the last three-four years, in every segment we operate we have gained market share. That shows we are very pro-consumer and whenever such a benefit comes, we will certainly pass it on to the customer.
We are going to get the GDP numbers at the end of the month. The general perception is that the demonetisation impact has not been so bad and the economy is doing well. Most brokerages and banks have upped their GDP estimates as compared to the CSO’s own estimate of GVA of 6.7%. Is the economy doing better than what the CSO had anticipated or is it doing worse? What is your broad view?
What we are seeing is that in sectors which are very basic for economic growth like the coal industry, output has gone up by 10%. We see there is good growth in the energy sector and agricultural output is up by 8-10%. We are also expecting a good monsoon. The revised higher estimate could be anywhere between 7.3% and 7.7%. I also feel that it could be in that range.
One of the puzzles is that even though GDP growth has been quite satisfactory, even the revised IIP numbers despite showing industrial production growing at a rosy 5% for the year as a whole, capital goods growth is still very low it is only 1.9% and we have not seen any increase in private corporate investment. Do you see any change in that area also? What is holding back private investment?
Most of the corporate sector is operating at less than 75% of capacity today. Plus, most of these companies went in for deleveraging and optimising their capacity. They are not focussing on new capital expenditure and rather are bent on improving their operating performance which has helped them to reduce the bottlenecks and increase the capacity. It is one of the reasons why the capital sector did not see a big growth in these years but going forward, we feel that this sector should do well and of course the government is also doing lot of work in terms of how to kick start the investment in infrastructure sector like roads, power and coal so this will be a good one.
