High Taxation leads to subdued revenue collection & economic growth; government should relook into taxation system: Adi Godrej

The budgetary decision to increase taxes was a very wrong one of the decisions related to taxing more to the higher-income group had an impact on foreign investments also, says Adi Godrej, Chairman, Godrej Group, during an interview with Zee Business.

Adi Godrej said, “the government must bring the entire corporate world under 25% tax bracket”. Image source: Reuters

The budgetary decision to increase taxes was a very wrong one of the decisions related to taxing more to the higher-income group had an impact on foreign investments also, says Adi Godrej, Chairman, Godrej Group. During an interview with Swati Khandelwal, Zee Business, Mr Godrej said, “the government must bring the entire corporate world under 25% tax bracket as 80-90% of corporate income has been left out its purview despite 98-99% corporates have been brought under its bracket”. Edited Excerpts:

Q: Our economy is going through a difficult phase and the latest GDP numbers stood just at 5 per cent. What is your take on it and what is your hope amid all this gloom and doom?
A: There is a difficulty in the economy and two things are responsible for it. The first is related to our own country and I will talk about it. But the global economy is also facing major pressure mainly due to the US-China trade dispute, which has affected the global economy. Similarly, European Economy is also feeling the heat of BREXIT. And, I think, we will not be able to see any improvement in the Indian economy if there is no improvement in these two global events. I feel, our government should provide a stimulus package. The budgetary decision to increase taxes was a very wrong, in fact, one of the decisions in which they have increased taxes on higher-income payers had an impact on the foreign investment and the government did not even know that it affected there. However, they have decided to withdraw it, but it had a negative impact. I feel, taxes should be reviewed. The former Finance Minister Late Arun Jaitley, earlier, had announced the maximum corporate tax of 25% and implemented it on 98-99% corporates but 98-99% corporate income was left out from its purview. I feel it should be implemented at the earliest. It should implement the recommendations of the commission which was constituted to look into income tax and provide recommendations. The report hasn’t been public yet, but available information suggests that provided recommendations are quite good and that’s why it should be implemented as soon as possible.

Q: This means there is a problem of too little and too late as the government took steps after the damage has happened. What is your opinion for the case where the government doesn’t take immediate steps and how worsen the situation can be?
A: It will not worsen more than these levels, what I feel, but it should be improved at the earliest or else Indian economy will have to face major difficulties. The government should take immediate steps. The government has a false notion that high taxes will help them in increasing their revenues, however, it doesn’t imply anywhere. High taxes hurt the economy as it reduces tax collection.

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Q: Actually, the government feels that they can increase their revenues by increasing the taxes as they have to meet their revenue targets.
A: This is wrong. Countries with low taxation have good collections and their condition and economic growth remain healthy. We have experienced it in India as well at times when our tax rates were quite high like 90% income tax among others. Those were the days where our collections and economic growth had remained subdued.

Q: There are talks related to the auto stimulus package and real estate stimulus package. Do you think that there is a need for such sectoral stimulus package or an overall stimulus package should be announced by keeping the entire industry in mind?
A: Both is required an overall step should be taken and it must look into specific sectors as well as. The auto industry is facing major difficulties and its sales have gone down by 20% and this is happening due to the new regulations and I feel that it must do something for the auto at the earliest. It should be done for the real estate sector because just focusing on affordable housing would not work but they should have a focus on it, but its spread should be increased to the entire real estate sector.

Q: What is your demand at the time when the government is talking about the stimulus package for the real estate sector because you are present in the segment as well. Suggest a few steps that must be taken?
A: First of all, permissions should be granted at the earliest as taking permission is a painstaking task in India, at present. Secondly, it should have a look at the taxations as high taxes create places and that’s why the government must review it. I don’t t think that reviewing it or bringing it down will decrease the revenues, but it may increase it.

Q: Did you had any meeting with the government?
A: Yes, CCI’s council meeting was held in Delhi - about 10-12 days ago – which was participated by the Finance Minister and heard our concerns. Good announcements were made after the meet, but more announcements were expected. However, the difficulties have increased since then because the growth rate of 5% was a surprising element for everyone.

Q: What is your take on decreasing demand situation as there are talks that it is just a beginning and it is likely to be worse than current levels?
A: I am not saying that it may worsen more but it will not happen just by talking and it is a time when solutions should be brought in place. The solutions may improve things, but we will have to wait and watch the quantum of its improvement.

Q: Do you think that there is a liquidity church situation in the market?
A: Good corporates are not facing problems related to liquidity, but SMEs and small companies are facing problems. The banks have lost a lot in the form of bad loans and that is why they are a bit careful while lending and that is creating difficulties.

Q: Have you put any of your expansion plans on hold at the time when the country’s economy is going through difficult times?
A: No, we are running our investment like it. We are investing a lot especially in our real estate business and have taken over several projects, which were not completed by other builders. We are investing and continue with it. If seen from the general perspective, the investment has declined in India.

Q: FMCG sector is also facing problems that are similar to the problems being faced by the auto industry. What are your views on the ongoing problem as a very predominant FMCG player and do you feel that the demand had declined hugely in rural as well as urban areas?
A: Demand has been hit especially in rural areas, which reported good growth earlier, but rural growth has come down. Demand has decreased in a true sense. However, FMCG is not based on government policy it has decreased just because the economic stake is not in good shape.

Q: What are you hoping how much pain is left in it?
A: The pain will exist in the system if there is no positivity in the growth rate.

Q: What is your outlook for the FMCG sector?
A: The government should take immediate steps as depends on that.

Q: What is your take on CEA Subramanian’s statement, “Private Sector must not rely on govt sops to clamber out of losses”?
A: It is not about loss, it is related to growth and economy. I feel that the government should take steps, which is not difficult, that will benefit the country’s economy and government’s revenue.

Q: This means the taxes have been increased out of a fear that revenues may go down?
A: Revenue will not decrease due to fewer tax rates. In fact, decreased tax rates will propel the economy as well as the revenue for instant if GST Council is being advised to reduce the GST rates on Auto sector from 28% to 18%, then it should reduce it for at least 6-8 months as it will increase consumption and give a boost to GST revenue. Use volumes to decrease rate difficulties and the government must take similar steps even in case of income tax, corporate tax and other avenues of taxes. There is a need to decrease taxes to revive demand and I was surprised when proposals related increase taxation rates were in the Union Budget.

Q: It was believed that the steps by the government are pro-growth like Rs1 lakh crore will be invested in infrastructure development in the country. Don’t such steps excite you?
A: Yes, capital investments must be done on infrastructure and at the same time, it should also pay attention to rates of taxes.

Q: The economy hasn’t revived despite rate cuts by the Reserve Bank of India (RBI) as well as government announcements. From RBI’s point of view, do you think there is a need for a rate cut?
A: There will be a rate cut because inflation is going down. I feel, rate cuts will be announced, and the banks must pass on the benefits of rate cuts to its customer, which is very important, but they are not passing it on. Passing on the benefits will benefit.

Q: Let’s talk about all the verticals of your business. Let us know about the segment you are bullish except real estate?
A: Our FMCG business performs well, however, the growth rate has come down, but it is doing well in terms of margins. Agrovet business has a future possibility but the rural slowdown has an impact on it. So, there are several businesses are doing well but as I have said that a good stimulus from the government will give a boost to the economy and our companies.

Q: Suggest ways to limit job losses, which is multiplying across the industry?
A: Jobs will be created only if the economy behaves properly.

Q: Do you think it can worsen more?
A: Yes, it can happen.

Q: Name the sectors?
A: I feel Auto sector has been hurt the most and that’s why I feel that corrective actions should be taken, even if, someone in the government feels that things will improve/come back to normal in next three months to ensure consistent growth. That’s why it should take the stimulus action of which we were talking earlier and then it can be studied to understand the world’s economy as in US-China trade war, BREXIT among others.

Q: Tell us about the global impact on your business?
A: It has been impacted. We have enough business in Africa and the economy is not doing well there too and we are facing issues in Argentina.

Q: Update us on the domestic vs international play and expected growth rates for the year?
A: It has been almost same at both the levels, India as well as the global levels. Both matches.

Q: Any message to your team, mainly vertical and business heads, during these difficult times?
A: Be growth-oriented without being disheartened and pushing for a stimulus during our talks with Delhi.

Q: Do you think that Godrej Group has plans to enter some new businesses avenues at present?
A: It is not the right time to enter into any new segment of the business as a new business seeks huge investments and the existing businesses need investments at present.

Q: You are also into the defence sector. Do you think that you will not focus a lot in the segment amid this slow pace of order offtake and will retract from it?
A: No not retract but lessen emphasis towards it. But one of our play has progressed a lot in the recent past and that is space as several of our equipment has been a part of Mission Chandrayaan-2.

Q: Do you hope something big from defence and space for the overall growth of the group?
A: In long-term, yes, but not immediately in short-term.

Q: Do you have plans to get into the business of lending and you need a bank license?
A: We are looking at the aspects that should we enter into the housing finance segment or not. It will be good for us because our real estate business is expanding a lot. But, we will not enter into a general banking system.

Q: Any timeline for it and let us know something about the business?
A: It will not take enough time.

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Q: Do you think that you will have face tuff competition from existing players?
A: No, as our there will be a demand from our customers as well as it is majorly going to be an inhouse business.

Q: Growth expectation from the real estate business?
A: It will be at the highest end of the double-digit as it happened last year.

Q: Type of investment that will be made on it?
A: We have raised more than Rs2000 crore through QIP in the recent past.

Q: Expansion areas?
A: Mainly in large cities.

Written by: Jitesh Kumar Jha

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