Subhrakant Panda: Govt’s focus on making India a manufacturing destination will pay dividends: Subhrakant Panda

What we have seen is economies where there has been an excessive stimulus, inflation has been elevated and very stubborn to deal with. Also, I think we dealt with the pandemic period in a good way in terms of reforms targeted at enhancing the ease of doing business and reducing the cost of doing business and the results are there for all to see with growth around 7% this year which makes us the fastest growing large economy.

Recently the World Bank also upgraded the growth projections from 6.5% to 6.9% for the current year on account of robust economic activities. Looking ahead I think the challenge is going to be that global growth is slowing down as you would know that IMF, the growth forecast for 2023 is about 6% that is sharply lower for 2023 which is 3.2% and then dipping further below 3% for 2024. So that is going to have an impact on India because we are neither an island nor decoupled from the rest of the world and, in fact, in some ways it is already visible in terms of merchandise exports where we have seen sustained period of growth and we have crossed the $400 billion mark last year creating a new record but of late that has been under pressure and that is a reflection of the second-degree effect of high inflation in developed economies in the west as well.

The fact that they are facing growth challenges with probably one-third of the world economy likely to have two successive quarters of negative growth is primarily going to be the main challenge that we have to deal with. But I am very confident about the India growth story because I think we have to look at the medium to long term where I think our prospects are very good.

Let me come specifically to one set of challenges as far as industry is concerned and that is exports. With the global economy hitting very clear headwinds it is a going to be a tough time for export oriented businesses. How do you see that panning out, which sectors do you think are going to be the hardest hit?
Well I think exports in general as I said are facing headwinds but we have to rather than focus on what is holding us back. I think we need to look at what we can do to break through nevertheless. And in that regard one development which I am very positive about or a big votary of are the production linked incentive schemes which I think have created a stir around the world. Clearly that is one of the key aspects of being able to attract new investment especially global supply chains to India.

So if you look at the China plus one strategy which we had a shot at maybe 15-20 years ago but missed the bus is back on the table because of geopolitical developments and India is well poised to benefit from that. In fact if you look at the disruption in China in recent times and how mobile phone exports in particular from India have shot up it is a living example of why there is a need for China plus one and to have backup plans in hand.
Beyond that I think what we can look to provide a boost to exportsby broadening the scope of the PLI schemes. At the moment they cover 14 sectors but perhaps we should be looking or we could be looking at specifically high export potential sector such as certain electrical components as well as sub-groups within the chemical sector which have a potential to really add to our export kitty.

Apart from that the steps taken by the government to reduce the cost of doing business through for example the national logistics policy where logistics cost is expected to come down in a few years from the present 14% to single digits – 8% to 9%, will certainly add to manufacturing competitiveness.

We should be looking at broadening the RoDTEP scheme. The government has recently announced that certain iron and steel products which were left out of RoDTEP will be brought in but I think RoDTEP should be comprehensive and I hope that there is an outlay in this regard in the upcoming budget because at the end of the day we do not want to be exporting taxes and duties.

I want to talk a bit about China and the whole COVID concern that is on right now. In your list of headwinds how high is that, what are you budgeting for? It seems very unlikely that India will go through another round of restrictions, etc, but do you think that COVID in China maybe hampering their economy and it is going to have a ripple effect around the world and specifically in India, what are your concerns there?
For the last day, day-and-a-half we have been seeing some news items about the spread of the parent unrestrained spread of COVID in China but given what their society is, how accurate these reports, whether they are exaggerated or whether there is under reporting of deaths, etc, which is happening is very hard to tell.

I think the next week or ten days will give us a better idea but as much for the Chinese people themselves as for the world I really do hope that the situation is not out of control because there are two things. I mean one from an industry perspective, of course, I do not think the world can afford another round of disruption to supply chains which would be very unfortunate. But I think we also need to look at it from the human perspective which is that unrestrained spread of COVID leads to the possibility of new mutations which can escape the current vaccination coverage, etc.

But having said that it is not something that I would be very worried about at this point in time because if you look at it from the Indian perspective the population is mostly vaccinated in terms of two doses.

A large number have got the booster dose as well and the government is really on top of things. In contrast to what has happened in China, if you look at how we approached the whole pandemic which is to have lockdowns to begin with when we did not really know what we were dealing with followed by the world’s largest vaccination programme which was done very efficiently and not to mention a calibrated reopening and in fact I headed the FICCI COVID taskforce during that time and many of the suggestions we gave to the government including reopening metrics was accepted by the government and that was the way to have dealt with it.

I know in the case of China that there was a lot of consternation about the zero COVID policy. But I think the reopening perhaps could have been handled better but the point as I said as much for the Chinese people as for the rest of the world I hope that this is not something which is out of control and disruptions if any are contained within a reasonable timeframe.

I want to get a little more specific on one of the big concerns coming from Chinese COVID crisis right now and that is for global pharmaceuticals. India still depends on China heavily for APIs. We are working on alternatives and those efforts began after the first round of COVID-19 but that will take some time. Do you think that that is a concern and how can FICCI come in something like that?

Well not just pharma there are certain sectors which are dependent upon China. If you also look at for example the metal sector where China is both large producer cutting across several commodities as well as a consumer so these are some of the sectors that one would have to keep an eye on as to what is the impact.

But I would prefer not to speculate at this point in time because it is early days, some of the information coming out at the moment suggests that there is unrestrained spread but how accurate this is and what is the scale of that is not something that we really know. Given the controlled news flow which comes from official sources, I would prefer not to speculate at this point in time but as and when more data is available that is when we need to react.

As I said the government has handled COVID quite well in India and even now I would like to comment the health ministry for being on top of things and reaching out immediately to the states and other stakeholders to sound an alert and ask that there be a level of preparedness should there be anything which spills over which I would hope not.

I think what needs to be done is being done including the genome sequencing of any COVID cases so as to catch any new mutations early. But as I said let us not speculate at this point in time. I think we should be confident in our ability to handle which comes our way as we have done so in the past.

I just want to shift focus a little to the domestic economy and we keep saying that we are better off than everyone else but that is a relativity. Let me come specifically to the question of inflation. The RBI has been saying time and again that in their view the worst is behind us as far as inflation is concerned. Do you see that panning out, are there any concerns in terms of consumer demand because of high prices?
So it does look like the worst is behind us because as I said first and foremost going right back to the pandemic where we got both the timing and the quantum of the stimulus right. This meant that while we did have an inflation issue to deal with but that was more likely not to do with imported inflation. Also, commodity prices globally have cooled off along with measures taken both fiscal and monetary by the government and the central bank has led to inflation coming within the RBI’s tolerance band.

But the governor mentioned that we can’t afford to relax and take our eyes off the ball because given how inflation is stubborn in most parts of the world this is not something that we want to declare victory too early but certainly the trend is in the right direction.

I think going ahead next year there is not much doubt that the growth will be slightly below where we are at the moment. I believe the projections are between 6.1% to 6.5%. I am more a votary of the 6.5% number and that will once again makes India the fastest growing large economy which is quite commendable but we have to accept that with global growth slowing down sharply that is something that we have to deal with.

Indian industry today is prepared, capable and confident. I mean if you look at cyclical sectors for example there has been a significant deleveraging of balance sheets and if you look at the banking sector there has been enough funds which have been raised so as to support credit requirements of industry.

So this is about what we can do, what is in our hands and I do not mean to be fatalistic but having said that I mean if there are any black swan events unfortunately although I hope not we will have to deal with it and move on but yes it is always a question of relativity. When we compare about India’s economic performance vis-à-vis the rest of the world, we are in a good spot. We are the rare bright spot in the global economy.

It has been a tough year I would say especially for new-age tech companies, startups and that startups sheen has sort of worn off in the last one year or so. Do you think there will be a revival next year, what would be your advice to new entrepreneurs, the younger entrepreneurs right now? Will it be more to survive rather than focus on high valuations, go back to basics to profitability, what would you tell them?
Well first and foremost to answer the last point first I think what everybody needs to focus on is to create value and forget about valuations.

But if you look at outlook for startups, yes there was a lot of exuberance, perhaps some of it irrational in the last 6 to 12 months, a lot to do with easy availability of money with low rates which persisted for quite a while during the pandemic period. So all of that led to a feeding frenzy and as that tide has turned and there is a little bit of funding squeeze obviously things are looking a little different.

But I do not think there is anything to lose heart about, the fact remains that the startup ecosystem in the country is very vibrant and there are a lot of young boys and girls out there coming up with wonderfully innovative ideas, disruptive ideas which are going to benefit whole sectors and the country as a whole. Just as irrational exuberance was not called for and neither should we go into some sort of depression and say that everything has gone to sheds. I do not think that is the case.

Good ideas, bright ideas will continue to come up, entrepreneurs will continue to make their mark felt through the disruptions that they bring about and the tide will turn again and as I said focus on creating value and the valuations will follow.

Just about a month before the next Union Budget is the wish list ready and what features on top of it?
Well, the wish list is certainly ready and as I mentioned to the finance minister at FICCI AGA which was concluded last week that India Inc has great expectations from the Budget.

Given the fact that inflation is now within the tolerance band of the central bank I am not saying we take our eyes off inflation but I think it is the growth. The focus should squarely be on growth and I am very enthused by what the finance minister mentioned which is that the budget will carry forward what has been the government’s legacy over the last eight years which is to be growth oriented and to be reform oriented while extending support to those at the bottom of the pyramid.

In terms of specific wish list something that FICCI has put forward is five-year extension of the 115BAB provision which is the concessional tax rate for new manufacturing units that is valid per se till March 2024. But as we set out to attract global supply chains looking to move out of China, India a natural destination but we have to be competitive as compared to other geographies like Singapore, Vietnam, Cambodia, etc.

Not only that global supply chains take time to move, it does not happen with the snap of a finger and I think we should put our best foot forward and one way to do that is to provide a clear window where we say that if you set up within this period of time then you will have access to the concessional tax regime. That apart we have also made some suggestions regarding further simplification of the TDS slabs because there are quite a few slabs out there and that leads to classification disputes and unnecessary litigation. So a continuing focus on improving ease of doing business, on reducing certain compliances will stand us in good stead.

The government has done good work in terms of repealing irrelevant rules and regulations which have been on the statute. So I am quite convinced that the focus of this government on making India a manufacturing destination not just for the domestic market but also for the globe will pay dividends.

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