Fiscal discipline key to India's growth prospects: Sanjay Nayar

"Continuity of the initiatives, from my perspective at least the continuity of portfolio allocations makes a lot of sense. So, with that foundation laid, I think the key thing the government has to think about at a very broad level is continuing to maintain the fiscal discipline that they have got," says Sanjay Nayar, President, Assocham.

Let me understand or start getting your thoughts on the government formation and the sense of policy continuity as you are getting, a veteran investor, now President of Assocham, given that there is a coalition government, the street was slightly nervous earlier, but now more calm, a sense of calm coming in. Do you see any impact in terms of execution of policy reforms or you also are expecting continuity to carry on?
Sanjay Nayar: I think that with this mandate, the government should probably feel more empowered if you ask me, not less. Because you have got certain coalition partners and if everybody is thinking the right way, which is how to make India a developed nation in the next 20 odd years, then you will get a better consensus building and you will get a lot more conviction in the kind of reforms. And frankly, the need of the hour today is execution on some of the projects and some of the initiatives they have taken, but also a set of reforms that are required going forward. So, actually if you have the right political will and manoeuvring and consensus building behind coming into Parliament and getting them through, I think will make it a lot more constructive is my belief.


What is your opinion? Should the focus of the government be in terms of the next five years? What should be the focus area given that prime minister has laid out his vision for a Viksit Bharat by 2047? A lot of other ministries are talking about their own 100-day agenda. What should be the focus in the near term and then of course the longer term in your view?
Sanjay Nayar: Continuity of the initiatives, from my perspective at least the continuity of portfolio allocations makes a lot of sense. So, with that foundation laid, I think the key thing the government has to think about at a very broad level is continuing to maintain the fiscal discipline that they have got.

Luckily, this time they have a little bit of fiscal flexibility because you have got a good dividend from RBI. I do not know how they will use it. Secondly, I think the deficit has been well managed while most of the capex have gone towards infrastructure, which is good capex. So, I think with that buffer and with that intent continuing, they could probably continue to do a higher allocation to capex and I would say only for the first few years.

I have said that many times. It is not only their job to spend on capex. We have to crowd in the private sector. But maybe a year-and-a-half or two they continue to do what they are doing because they seem to do it very effectively and then look for schemes and ease of doing business and all the other good stuff we talk about to crowd in the private sector so that the capex cycle can really continue because that is the need of the hour, so that is one part of it.

I think the second part of it, staying with the fiscal, is to try to begin to address the size of the debt that we have.
So, while the deficit is very well controlled and is on a declining path, I think total debt to GDP is something that we have to remain hawkish about.


One part of your proposals has also been on the MSMEs with respect to job creation, ensuring equitable growth has been one of the key issues, I mean this entire election as well. As you suggested, a boost on MSMEs would kind of make impact on the ground as well. But what beyond MSMEs and entrepreneurship is also would you like to see?
Sanjay Nayar: I think that the other area has to be continuing and maybe enhancing some of the PLI schemes. And again, I do not want to call it incentives and subsidies because A) it is not the right thing, but you have got to direct the incentives in a manner that you really activate the supply chain angle that we have talked about for a long time.
And by the way, there has been a lot of progress in last three years. And if we can get that right, especially for India, as well as for exports, I think that is the other area where you can get employment pick up quite a bit.

I think that requires a more detailed discussion is my view, but I would say exports and taking the supply chain challenge very seriously and again the ease of doing business even for these corporates not just SMEs is extremely important to get employment going.

Look, without manufacturing for exports or for locally, it is not going to be easy to increase employment. And I would say ultimately also it is about the kind of skills we are providing to people. There is no point training them for a lathe when folks are getting focused on a lot more high-tech stuff. So, we will have to also think about how we channel the energies towards more advanced and more modern techniques and technology, because that is what we need right now.

Speaking of manufacturing, you have touched upon that briefly, government's wish is to become atmanirbhar and also not only manufacture for our own requirements, but also manufacture for the world. Can just with the help of PLI schemes, alone be of help or some more policy work will be required? How can we boost manufacturing and how can we really become and make that a very significant part of our GDP?
Sanjay Nayar: Yes, I think for the value addition aspect, I would say rationalising some of the import duties from raw materials to finished goods in a very smart tiered fashion in addition to PLIs is the way to go. And I think we will worry about global manufacturing share later, I think we got to get the manufacturing as a percentage of our own GDP up first. So, I think we have a long way to go. Let us try to address that first, before we think about getting a larger share. We have to increase the share of value added exports to the total exports, we have a very small share of that. We have a pretty large share of some of the low value added exports. So, just focusing on a very few things rather than complicating and confusing ourselves is the right way to go. And I do want to talk about the consumption stimulus a bit more, maybe after this or maybe now.

Let us talk about boosting consumption there. For the rural recovery, we have started seeing early green shoots according to some large corporates and even RBI governor spoke about it that rural recovery has started at least, it is very much on track after last few quarters. What more in your view can the government do to boost consumption and rural recovery can actually be structural?
Sanjay Nayar: Look, we have got a lot of the subsidies and schemes going very effectively into the rural hands, thanks to Jan Dhan and thanks to all the digitisation.

I really think rationalising the IT slabs will help a lot in general with the lower and the middle class. I also think that there may be, I know it is a dangerous suggestion to make, maybe it is worth rationalising GST into simpler tiers and just moderating the rates. It is a pure consumption tax right now and that is fair. It has been very effectively implemented and has been very effective in terms of indirect revenues.

But I think it may be worth, again, talking of a consistent, sustainable consumption stimulus, not just a cyclical one, rationalising some of the rates in GST could be actually quite interesting besides bringing petroleum and oil into the centre.

Yes, I mean, that is the way to look at this. I am sure the economists and the government are giving kind of a top-down look. This is the opportunity in this budget, if you ask me, to really combine a longer-term strategy which actually the finance minister every time does emphasise and I think she has really laid out a strategic plan in every budget.

I think this is the time they should lay out a four- to five-year plan and which is well thought out from a macro point of view as well and it will have to be a combination of consumption stimulus which is sustainable and investment stimulus that they do for a couple of years, but then make sure that everybody else crowds in automatically.
And the final thing is whether you like it or not, our per capita GDP is still small. So, we have got to get that up, which ultimately will come with real GDP growth and you got to make sure that people then have enough disposable income.

What are your thoughts on the way investment demand could be boosted, which in turn will actually go ahead and trigger consumption? Do you think rationalisation of taxes could be one area which actually government could address? What else do you think would lead to that objective being fulfilled? Do you think the fin min have enough elbow room to expand that?
Sanjay Nayar: I think they have an elbow room, like I mentioned, I think there is elbow room, absolutely. And if you combine that with monetising some of the operating assets under the national monetisation plan, you can actually fill that gap back on the fiscal account. So, you can actually make it quite a virtuous cycle. I mean, I feel that capex, the quality of capex matters more than the quantity and until now, the quality of capex has been very good.

We have seen that in the creation of infrastructure. I think a little bit more allocation, again, through the tax route towards R&D which is a topic that did come up in finance minister consultations, although they have quite a few incentives and innovation fund and stuff like that which people should tap into. But having said that, I think benefits for some of the new manufacturing plants, expansions, maybe the sunset for 115AB gets extended, maybe some special tax benefits for real R&D, those are some of the tinkerings I am sure that they can do to not just make it just capex for highways and infrastructure.

Look, I am not an expert on that to be very honest. We should leave that to the finance minister. I can tell you, having interacted with the team, that they are absolutely A-class team. They are top of the game. They know the details. And I think they know best what the trade-offs are, that they seem to really have a good handle on their trade-offs.

If India indeed has to continue the growth momentum, the growth may actually remain structurally above the 8% mark and as the third largest startup ecosystem as well, not only the listed world, but startup ecosystem as well, what do you propose we need to do to strengthen that domestic flows of capital can also come towards startup over the years?
Sanjay Nayar: Innovation that was put together. Yes, we did get stuck and we are still stuck a little bit between crosshair of taxation and securities and stuff like that, but those will probably get sorted out. There is a lot of representation on ESOP taxes and angel tax and all that. But at a very conceptual level, the country needs much more local domestic capital to be crowded into, venture capital and private equity.

I mean, we probably have, I do not know maybe a thousand AIFs, I am not sure about the number. I think IFCA will have a better idea of that. China has 10,000 and China has probably a hundred AIF equivalence above a billion dollars in size and we probably have a handful of locally managed local funds. So, we have a long way to go. And I do not think it is for just held up for tax reasons. Maybe it is and maybe the anomaly between the public markets and the private markets continues to create that friction and hopefully that will get resolved. But we have to crowd in the private savings and ultimately it goes back to the risk appetite and it goes back to who can afford it and frankly, the population that can afford that.