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'I don't see the govt taking any serious steps to reform fiscal policy'

TVS Suzuki is one of the few automobile companies doing well. Yet, Venu Srinivasan, chairman of the company, seems restless. Slowdown in the Indian economy, industrial growth at an all-time low, and the two-wheeler and car sectors witnessing negative growth are the reasons that are worrying him.

And, he is also pessimistic about any reformist measures being talked of in the coming budget.

He speaks with Shobha Warrier on the Union budget, globalisation and what ails the Indian economy.

Do you, like some other industrialists, feel that there is no level playing field available to the local industry, especially in view of global players entering the Indian market?

There is a lack of level playing field, but one should not exaggerate. There are basically three problem areas.

The first one is the central sales tax. One who imports does not have to pay excise duty or (modified value-added tax) Modvat on his sales and service. This results in a lack of level playing field.

Second is imports from China, Taiwan and Korea, where labour laws are far more flexible, will be readily available. Unfortunately, Indian labour laws are much more stringent.

The third is because of lack of proper infrastructure, transportation is expensive and thus Indian exports become more expensive. So, the cost of operating in India is high while the multinationals, who produce things abroad and bring them here for sales, do not experience such difficulties.

The issues that concern the older companies is that they have established plants, which are for long-term economic capacity. This is how they functioned during the licensing era.

Suddenly, they find themselves in an environment where they have to compete with the new plants that conform to global standards.

Unfortunately, as it may be for them they will have to face the situation.

Earlier, we heard only few voices, but now more and more people are joining in.

When more people are threatened, you hear more voices. Many people did not foresee the threat to their businesses and themselves during the initial phase of liberalisation.

They were complacent in thinking that liberalisation means that they need not suddenly get government clearances. It was some kind of a panacea. The reality is, however, different.

There was not a sudden surge of activities among the multinationals in India.

I feel that there is a lack of level playing field as far as imports are concerned. An item made by a small-scale manufacturer in India under certain reservations can be imported from outside India. The small industry is thus decimated.

I find the whole thing ridiculous. Why import items that are manufactured by small and uneconomical plants in India? Either you should de-reserve those items or we should not import such items till large plants come up in India,

How is the flooding of various types of Chinese goods going to affect the Indian market?

As far as China is concerned, one should not exaggerate the problem. They say it is all due to Chinese pricing. I find that very difficult to accept. Part of the problem is China's marginal cost price. There is also a systemic efficiency in China. Their system is much more efficient than our's.

It can be due to labour laws and management competence. Why do we only blame labour laws and labour alone? The management is equally responsible for the lack of competence. A lot of companies are going to face the threat.

How will you face the threat of Korea or any other country dumping two-wheelers in India?

You have to have anti-dumping mechanism if you find that the prices are artificial and very low. It is going to be a difficult situation to handle, but you cannot go on blaming the foreigners or a lack of level playing field.

Who has to be blamed if Indian companies find it difficult to thrive in such an atmosphere?

Liberalisation was done under duress. India had no option then. I think if we had done liberalisation gradually from 1980, with a clear, announced time frame, then people would have got ready for it and expected certain events to take place.

Secondly, production-wise Indian companies are far less productive than their international counterparts. We employ more management, more staff and inefficiency is endemic in our system.

Do you feel with the introduction of VAT, Indian companies can be more competitive?

In the local market, VAT (value-added tax) would definitely provide greater help. VAT should come as early as possible. There is no doubt about that. Particularly in the plantation sector where Indian labour costs are far higher than many other developing countries.

For example, tea from Kenya and Uganda are very cheap where labour costs are significantly lower than India. On top of that, in the case of Nilgiris tea, the terrain is also not very friendly.

Likewise, rubber from South-East Asia is cheaper. Labour costs for unskilled workers in India are much higher than many other countries. What are we going to do? One day, we have tackle the issue.

Do you believe in the terms old economy and new economy?

See, today, internationally, people have realised that you cannot eat software, you cannot drink software, you cannot go to work on software, etc. You need a car to go to work. You need food to eat. You need tea to drink. I can't see images of software. Yes, you need software to paint images on a hard product.

The point is, I don't think if industries use software, they would be able to offer greater value to the customers. I think the terms new economy and old economy are too exaggerated.

Do you think the emphasis of the government on the new economy is more?

What I would say is that there is a lack of infrastructure spending by the government. They are not developing roads, highways, ports and airports. All this is certainly is causing problems.

The hype about software is diverting attention from the fact that government is not spending on infrastructure. And, software cannot put food on the table; software also cannot produce educated masses.

But the government is not investing adequately in primary education and healthcare. What I am saying is that software is diverting attention from all these important issues.

At the same time I must admit that since software is such a hard currency earner for India today, the government cannot be expected to ignore it.

But our great worry is that infrastructure spending is not taking place at all. It is not because too much emphasis is being put on software. The fact is that the government does not have a proper fiscal policy and is unable to tackle the issue of subsidies.

Now, there is a slight change in the attitude of the investors to the old economy. Still, do you think investors also have lost confidence in the manufacturing sector?

It is changing. The hype over dot-coms is over; now they have disappeared. But good companies like Infosys and Wipro are not based on that hype. They produce solid products for services to multinational companies, and thus they are solid players in the market.

Some of the software companies are growing at 60, 70, 80 per cent, and that is what is attracting investors and not the hype.

There is a certain amount of hype but that is bound to happen when the software industry is growing so rapidly, and technology is fascinating.

But I feel software companies by and large are very hard players in the economy. They provide employment and very high salaries. They are able to convert the hype into high revenues.

Do you expect that the service industry will now be taxed?

VAT has to be applied to all industries. It has to come to trading and services.

Economic growth has slipped from 6.4 per cent to 6 per cent, and now it has hit 5.8 per cent. How much does it worry you?

That is the biggest worry that we have now. This low growth rate will affect everyone. In my opinion, it is closer to 5.2- 5.4 per cent, and not 5.8 per cent as published.

See, the growth of the two-wheeler industry was negative in the last two months, so was the growth of sales of cars and commercial vehicles. How can you explain this in the context of an economy that is growing at 5.8 per cent?

The reason for this sluggish growth rate is not because of the hype in software but lack of hard investments in infrastructure.

The growth was a result of the software and other service industries where the salaries had gone up substantially.

They used to buy cars, two-wheelers and air-conditioners, and now that is over.

I believe that unless there is sustained infrastructure investment, there will not be any growth for the economy.

Do you expect the finance minister to announce some investment in the infrastructure sector, cut subsidies, and downsize the government?

I don't know why it did not take place last year. Therefore, I don't know why it has to take place this year. I'm quite pessimistic over the government taking any serious steps to reform fiscal policy.

I don't have any false expectations. Now, they will use Gujarat as an excuse to make all kinds of statements like taxes will be increased, (surcharge has already been increased).

Excise duty on cars is 40 per cent including central sales tax and local sales tax adds up to 68 per cent on the customer price! So, if the price is Rs 100,000, the customer will end up paying Rs 168,000! It is too high a taxation. We had suggested that from 40 per cent it should be brought down to 24 per cent over a period of three years. I do not have any confidence now.

Take dividend tax. Last year, for some reason, the dividend tax was hiked. Now, dividend tax of 20 per cent is onerous. Dividend tax at 10 per cent was bad enough!

Then, the divestments of PSUs did not take place because the prices are too low. It is a vicious circle. It sent very negative messages to the stock market.

I hope the finance minister will have the courage to say that we will completely cut off the dividend tax.

Industrial growth has sunk to 3.4 per cent in December this year compared to the 8.1 per cent growth last year. The Centre for Monitoring Indian Economy forecasts a poorer performance of the Indian industry in the second half of the current year.

When the economy is not growing, industry also will not grow. There were talks about rural roads but nothing happened. Nothing has happened to the six lane national highway, which they announced.

No major port has come up except the Ennore port. Airports, nothing has happened. Not one rupee worth of investment has taken place. Even in Tamil Nadu where we are supposed to do a joint sector project at the International Airport, the Civil Aviation Department has not given the clearance. Such vested interests will have to be eliminated with political will.

You are not able to increase oil prices because somebody is complaining. You are not able to increase railway passenger fare because somebody else is complaining. No concrete steps have been taken towards railway privatistion.

The civil aviation ministry is not willing to support foreign investment in the civil aviation sector. So, you see vested interest chasing each other. It is all due to lack of political will.

Take for instance the agriculture sector. After the Green revolution and white revolution, there is no revolution at all. If funds are allocated to villages directly through panchayats instead of routing it through the public works departments, we will have better result as far as water harvesting and dams are concerned.

Nothing has taken place in primary healthcare. What about primary education? There is a fantastic program in Madhya Pradesh where money is given directly to the village.

We need to create new models for India. We cannot follow the colonial model anymore. If you introduce a revolution of 'Panchayati Raj', you will see a revolution in the country.

How much will you be affected by the slowing down of the agricultural sector? The rural market is said to be quite huge.

We will be affected very badly. Agricultural sector is a very big consumer of the industry. In future, consumption is going to come from the rural sector.

But that can be corrected very quickly by low cost practices on minor irrigation, primary health, education, providing new hybrid seeds, etc. Even family planning has come to a standstill.

Every country protects its agricultural sector with subsidies. We also have to do something to protect Indian agriculture. You can't allow Indian agriculture to be decimated by other forces.

You said you were quite pessimistic about positive action from the government. Does that mean you see only a gloomy picture of the Indian economy for the next year?

I have not seen any indicators to be optimistic or confident about reform being carried through. And, by reforms I am not referring to the central government alone. What about the state government's fiscal responsibility?

All the state governments are spending their money on payment of staff and interest costs. There is nothing left after that expenditure.

So, state government taxes are only going to pay staff salaries and interest. State public sectors waste huge amount of money. It is better to pay the workers and close the units than keep the companies alive. That will be cheaper than running the company and using so many other facilities.

The central government has been talking about cutting down on expenditure and downsizing the government every year…

What about downsizing the state governments? Maximum employment is not in the central government but in the state government.

But whenever people talk about fiscal responsibility, they talk about the central government only. Half the problem is with the states and half the problem is with the Centre.

I see slower growth closer to 5 per cent next year. The government is talking about 8 per cent but where are we going to see that? If you can maintain 6-7 per cent growth, it will be fantastic! If it is 8 per cent, it will be wonderful! But where are the policy initiatives to facilitate such growth?

Everybody blames politics and the government. But I feel the society is also responsible. Indian society is not mature enough to accept some of the bitter medicines.

Margaret Thatcher was able to go ahead with the reforms because the United Kingdom was fed up with the labour governments. The government is reflective of the society.

When you say Indian government, it is Indian first and then only comes the government. Leaders like Chandrababu Naidu and Digvijay Singh have overcome the society's resistance with the help of communication. But there are only very few people like that in India. Other than Naidu, Digvijay Singh, S M Krishna and Murasoli Maran, can you name anyone else? What about the rest of the country?

There is a saying, people get the government they deserve. Who elected the government? Why did you elect such a coalition? Why didn't people say, we want reforms, so, we are going to elect one government. It is such a divided verdict and then you blame the government. How can you?

SEE ALSO:

Earlier interview with Venu Srinivasan: 'Indian customer is not aggressive in his demands'

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