Opportunity in crisis to create Rs 5 trillion economy and generate employment

The All India Association of Industries is a premier Chamber of Commerce an apex body , representing the interest of trade, industry and employment in all sectors since 1956.

Mr. Vijay Kalantri, President, All India Association of Industries Said, We have been constantly appraising the Government along with various Ministries, the RBI and  various stakeholder time gain about the repressive and toxic measure which need to be reviewed in order to achieve the Rs 5 trillion which is not an impossible challenge.  Decriminalization of Companies Act , Direct and Indirect taxation including GST and Enforcement Directorate is the most urgent demand. Moreover, regulators like RBI , SEBI and others have become controllers, rather than regulators. It is becoming detrimental to growth and working of business and corporate sector.

A strategy of killing the situation rather than fixing the loop holes by constantly reviewing the changing economic environment has become a culture!

The Indian businesses have talent to work out their ways of survival but it is the Government support that matters to rechristen the economy post COVID19. Support to wipe out regressive laws which are working adversely for the small Indian businesses is what forms out of the major requests. The regressive and irrational laws are suffocating businesses promoting oligarchy and monopolistic regimes crossing the very principles of the Competition Act.

In the post COVID19 scenario, large stimulus package atleast 10% of the GDP and structural reforms are a must . And the same should be in three grades MSME , medium and corporate. The earlier two should be considered for 80% of the package as the large corporate as per analysis still are resilient post COVID19 . And at the same time there could be probable misuse of relief package by large corporate to buy smaller companies. All types of tax related refunds should be expedited.

Following are the suggestions made in the below mentioned segments which are the prime essentials to support the ailing MSME , Midcap companies along with infrastructure below the Rs5000 Cr networth which need urgent attention .

Agenda of Suggestions

1.     To Kick start post COVID19 the New India Economy

2.     Reserve Bank of India

3.     Government

4.     Foreign Trade

5.     Power Sector

6.     Employment

 

1.To Kickstart Agenda for the New India Economy

1.     A R$ 56 billion   stimulus package with leniently rewritten major Acts such as the Companies Act along with IBC, Criminal Procedure Act, Income Tax Act, Employment Act etc all related to business environment.

2.     With a total revamp  in regressive and irrational regulatory architecture is what Indian businesses demand if it needs to survive this global holocaust.

3.     Make the best of the black labeled Communist “Interventionist Regime”. This is a wake up call for the Government and bureaucracy to settle MNC manufacturing giants by forming MSME cluster to tie up with single MNC instead with a large cap company. This will prevent oligarchy and litigations due to transfer pricing. Cumulative stake of companies to be 70% with minimum repatriation of profits and subsidy on investment of revenue proceeds. This will help better supply chain management and cost and quality competiveness with stable pricing.

4.     Section 7 , 9 and 10 of NCLT/IBC Act should be kept in abeyance till the last quarter of FY20-21

 

2. Reserve Bank of India

Interest Payment

1.     Freeze all statutory interest payments and Modify Interest payment

At a time when industries are facing loss of revenue from disruption to their business, the government should freeze all the outstanding interest payments and club the outstanding in packets or tranches having increasing interest rate component capped at  6% pa.

Companies in the travel & hospitality, retail, real estate, entertainment and hotels may face low demand in the next one year because of the expected change in the lifestyle of the people post-COVID. This effect will lead to default in interest payment towards outstanding debt .

Conversion or clubbing  of outstanding interest payments in packets or tranches will help facilitate payments at ease and at the same time save face of these companies being referred to the NCLT/IBC.

2.     3 level  tranches of clubbed outstanding interests  to be introduced and the companies to be allowed to pay the outstanding contrast to time constraints. The tranches be classified as ,

•        Highest tranche (75% discount)-to be paid by H2 of FY 20-21

•        Middle tranche(50% discount)- to be paid by H4 of FY 20-21

•        Last Tranche(9%)- to be paid by H1 of FY 21-22

Interest component needs to be securitized in packages and need to be left with the discretion of the creditors to be outsourced from agencies managed by them whether it is through the FPI route etc. In this way what the banks will be responsible only for the outstanding capital and not the interest component. This will also provide insulation in terms of volatility in the interest rate scenarios due to various macro and micro economic conditions.

 

3.     Subsidize interest payment for MSMEs and Midcap manufacturing and infrastructure companies having networth below Rs 5000 Cr

 Government of India should partially bear the interest cost on the working capital and term loans availed by MSMEs. Even though Reserve Bank of India reduced repo rate to 4.4% on March 27, 2020, even a AAA-rate corporate entity (company with sound credit rating) is not able to raise bank loans at interest rate below 8%.

The interest rate paid by MSMEs is even higher than the 8% as they are perceived as high risk borrowers. In order to reduce the interest cost burden on MSMEs, the government should subsidize the interest payment of MSMEs. Government of Bangladesh has provided subsidy on working capital loans availed by MSMEs.

 

4.     Government guarantee for loans to MSMEs and Midcap manufacturing and infrastructure companies having networth below Rs 5000 Cr

In order to encourage public sector banks to lend to the MSME sector, which is perceived as risky, government should provide either complete or partial guarantee on bank credit to the sector. The government already gives guarantee under the CGTMSE scheme for MSMEs to avail collateral-free loans upto Rs. 2 crore. The corpus of this scheme can be enhanced so that it benefits a wide spectrum of MSMEs.

There should be retrospection regarding earlier loans provided by the public sector banks . Government guarantee will encourage banks who shy away from lending to the industry in this circumstance. The entire public sector banking system is presently  sitting on excess liquidity of Rs. 6.92 lakh crore, which is equal to more than 3.4% of India’s GDP. This liquidity should flow to the industry to kickstart economic activity post lockdown.

 

Alternate Financing

 

1.Semi Corporate bonds to be introduced for MSMEs and Midcap manufacturing and infrastructure companies having networth below Rs 5000 Cr

Most of the MSMEs fail in listing criteria at the major stock exchanges mostly due to their poor financial position. However, there needs to be an initial thrust by the stock exchanges to be in turn mandated to list registered MSMEs on their platforms. At the same time, there needs to be process initiated to buy Corporate bonds of such MSMEs by banks with a bank guarantee if necessary.

 

2.Provide bridge financing for MSMEs and Midcap manufacturing and infrastructure companies having networth below Rs 5000 Cr

Countries such as Thailand have provided bridge financing for companies whose bonds or loans are maturing in the current financial year. Such a bridge financing will help companies repay their loans that fall due in the immediate future. Even Iceland has offered bridge financing to distressed enterprises in this circumstance. Government of India may provide such bridge financing to MSMEs whose loan amount is due for repaying in the current financial year.

 

3.One –time restructuring of loans

These are extraordinary times that require extraordinary government measures to support the distressed industry. We cannot expect quick recovery in economic activity immediately after the lockdown as it may take a few months for migrant laborers to return from their hometown and consumer demand to pick up gradually. Therefore, the operation of MSMEs may not attain the full scale that was witnessed before the lockdown.

This will cripple the ability of these enterprises to repay their loan even after the moratorium period of three months, given by Reserve Bank of India (RBI). Therefore, the government and RBI should provide a one-time restructuring of loans extended to MSMEs and other distressed companies.

 

Apart from the above we urge the RBI,

1.To cut the CoC powers in respect to selection of IRP/RP to be done strictly on basis of eligibility, quality and total remuneration matching the payment ability of the company.

2. To check or initiate inquiry in case of CoC biased towards oligopolistic takeovers retrospectively. There is huge probability that small but viable manufacturing companies may be threatened by the COVID19 scenario fall prey to oligopolistic takeovers.

3.The CoC to be made responsible towards resolution plan for MSME rather than allow takeover.

4.Rework manufacturing loans for the manufacturing companies in electronics, semiconductor technologies,  computer hardware and pharmaceuticals which have been depressed due to decade long problems due to tariff measures and issues in anti dumping policy with China .

5.     No personal guarantee should be taken for the loans taken by MSMEs and midcap companies in infrastructure and other below networth of Rs5000 Cr . The mandate should be removed as loans are taken for business and not for personal use. Personal guarantee for business loan is not an international practice . Now in addition the banks are asking for government guarantees which is surprising and this is what goes bagainst the business . the triangle between RBI banks and the government takes enough time to sabotage the enthusiasm growth.

6.     RBI should come out with discreet guidelines for declaring defaulter or willful defaulter. Presently the guidelines are very vague not clear as business laws due to policy paralysis or due to obsolete technology or macro economic shocks which are beyond the control of the entrepreneur and the same is labeled as a defaulter which is practically wrong.

7.     It should be mandated that banks follow RBI guidelines strictly and do not encourage autonomy. The banks are observed to take arbitraey decisions to save their skins by declaring the company defaulter even if they are not in the same is not in that  category.

NBFC

1.RBI to provide clarity on applicability of moratorium and access to a formal liquidity window which may provide some structural liquidity support to NBFCs similar to that available for banks.

 

2. Allow route to foreign investments through participatory notes though under strict monitored review.

 

3. Make FTAs compatible for free flow of foreign direct investments .

 

4. Ratings downgrade to be relaxed till second quarter of FY 21-22.

 

5. Credit rating agencies to be provided with certain cushions or guarantees by government which will absorb the risk factor thus avoiding the downgrade in times of such incidents relating to Force Majeure.

 

6. Overall review of laws and regulatory system pertaining to lending patterns with accurate planning strategy. Play to the gallery needs to be avoided while reviewing the laws , most importantly to not make the same in a panic situation.

 

7. The moratorium waiver should not carry interest. The other countries have reduced interest with some making it zero with liberal funding.

 

3.Government

1.      Reduction in GST rates to 12% and 5% for essential commodities.GST can be charged over 18% for luxury items such as alcohol and cigarettes and on property purchase of 3^rd property. Since multiple rate GST implying input distortions. Petroleum and its products and real estate to come under the ambit of GST.

2.      Reduction in reckoner rate  by 40% to ease real estate crisis. Government to acquire existed unsold real estate for the urban poor as an incentive for urban poor to stick to their urban employment . As there has been large scale migration due to the COVID19 fear.

3.      Immediate lending at 3% for MSME where cases have been lodged at NCLT to clear dues of the Operational Creditors with an out of court settlement. Government to issue a circular in connection with the same.

4.      Settlement of cases with the company given back in the hands of the original promoter if there are signs of oligopoly contradicting the competition act in the takeover. NCLT/IBC has become more of a takeover code than a resolution code.

5.      Rs10 Cr to be made limit for admitting a case of Operational creditor with the NCLT.

6.      NCLT/IBC to differentiate between Operational creditor and Financial Creditor cases. In case of operational creditor IRP/RP should not be appointed, as their stake is very low and at times they are installed by vested interest takeovers and they should be handled by a time bound process. This amendment should be done retrospectively as this has put many entrepreneurs /jobs at stake.

7.      The principles of Competition Act need to be adhered in case of NCLT/IBC in case of award of verdict.

8.      Litigations due to tax disputes to be settled under the Sabka Vishwas scheme prudently barring prejudice of treatment.

9.      Easy deemed  online permissions by state and central government except for environment and pollution clearance as followed by many countries .

10.    Signing FTAs with countries having huge demand requirement for particular commodity ut trade is hampered due to tariff and non tariff barriers.

11.    Creation of SEZs where businesses can perform better in a organized environment.

12.    An ecommerce platform has helped many Chinese MSMEs to develop faster and seek opportunities . There should be an  efficient Ecommerce platform which will help MSMEs not only to seek raw materials and intermediaries but at the same time display the value added products.

13.    Logistics and supply chain should be made more smoother in terms of movement of goods especially for MSMEs in agro based products and the required raw material.

14.    Foreign consultants and foreign financial services should be avoided as they are not acquainted with ground realties and they charge huge fees and we take their advise and do not imp[lement in toto but in piecemeal which impacts industry trade and employmenet and growth.

15.    Solution to accumulated capital of the MSME.

1.)  Conversion of business capital in the forms of unaccounted cash/bank deposits into formal funds may be allowed to GST-registered firms only with 10-20 per cent progressive penalty structure.

2.)  Conversion may be restricted to deposits up to Rs 2 crore. This may facilitate a business to have an annual turnover of Rs8-10 crore with four to five working capital cycles in a year. The deposit to be used for business transactions only.

3.) The scheme should adjust itself in terms of  penalty rates and conversion amount can be fine-tuned/changed after discussions with trade and industry.

4.) All the unaccounted funds/cash holdings/bank deposits of a business need to be deposited in a designated current account of a bank linked to business activities under GST.

14.Sabka Vishwas Scheme

1.)Simple and one rate tax policy with a discounted onetime payment .

2.)The Sabka Vishwas scheme needs a thorough review in context to this principle. This will act as a big booster for the government, which is staring at revenue shortage from both direct and indirect taxes.

3.)Even if the assessment is done and demand is raised and appeal is nor filed or pending against the actual payable amount . The government should consider including such issue in this scheme.

4.)The scheme should be implemented by the concerned authorities in same letter and spirit as it has been intended . At times at the operating level , government officials are reluctant to accept matters under such scheme inspite of the eligibility due to reasons best known to them , behind such acceptance.

4.Foreign Trade

Foreign Trade Policy

The new FTP,

1.     Needs to be most congruent with the present situation .

2.     It needs to be tailor made approach to the country of trade.

3.     There needs to be solution to multi country participation in ecommerce trade.

4.     The MSME and companies below the Rs5000 Cr networth need to be incentivized and subsidized.

5.     The entire foreign trade matrix needs to be prepared with sector and country of export in mind.

6.     There should be All India level discussion and consultation with stakeholders before formulating FTAs and FTP with a  review on existing policy

7.     There should be time  bound implementation of anti dumping duties

8.     Safeguard duty to be put in place based on study on items to be dumped from China through Srilanka, Hongkong, Nepal etc. As these are destinations from where Chinese goods are sourced to India.

9.     Certificate of origin norms and procedures to be simplified.

Free Trade Agreement

India’s export basket is concentrated on the lower stages of manufacturing. It is important for India to move up the value chain to ensure that tariff reductions have their intended impact. Primary and intermediate goods are more affected by demand and supply factors rather than income factors. Therefore, high-value goods have greater buoyancy. One reason for India to not have benefitted from past FTAs is due to low utilization between five to 25 percent, as argued.

India needs to take this opportunity to review  its existing FTAs and identify sector-specific reasons for such low utilization rates.

Post the decision of review India need to enhance its negotiation skills. Thus,

1.     India needs to market its 100% verified quality with 99% zero defect  and cost taken together .India scores higher than its counterparts on cost and quality balance but if cost is considered as a standalone then we are not able to market ourselves better.

2.     India needs to review its regulatory framework to suit International trade. And an attempt needs to be made to remove such Trade barriers  like taxes and nontariff barriers like regulatory laws which are one of the major obstacles to allow free trade between Indian businesses which make their products highly price uncompetitive in the global market . This would imply better negotiation skills based on resilient regulatory frameworks responsive to global trade.

3.     The other constraint to achieve an upper hand while negotiating FTAs is by improving standards in most of the criteria as far as infrastructure is concerned . Most of the Indian infrastructure lacks International standards , especially the IT infrastructure . India has an upper hand as far as the services sector is concerned however there have been many compromises on the data security in the Indian context. And at a time when services such as hospitality and tourism which stood for a good chance to earn foreign exchange the same are set to go slow in the post COVID19 era for atleast for a while.

4.     India needs to have immaculate unbiased International Arbitration Tribunal based on International law on its own shores. Moreover it is mandated in India that at least five years of national litigation is necessary after which the international tribunals can be approached. This clause is India’s own policy hurdle  which has led to weaker negotiation on the part of Arbitration in India.  India has a very weak trade related arbitration and dispute and management infrastructure infact there was an attempt to build one by the then Maharashtra Government which has not seen the light of the day. India wants the foreign investors to exhaust the national judicial remedies and then only go for international arbitration which does not favor the negotiation in terms of FTAs .

5.     In regard with the FTAs, India should be very careful in the clauses of negotiation in case of services sector. Despite having a strong services sector in a select few categories, ( IT, ITES, Healthcare and Education etc.) the agricultural sector as well as the industrial sector, especially the Micro, Small and Medium Scale Enterprises are still not as mature and strong as compared to the other countries with which India is negotiating FTAs.

Thus , India needs to incentivize this sector in order to meet international standards or else there will be no meaning left to initiate such FTAs and kill the domestic industry.

6.     One of the other key areas of interests for India in its FTAs is computer-related services (CRS). India has global footprint and comparative advantage of its IT/ITeS services sector and other computer-related services . Hence negotiation in terms of business exports in this sector should receive higher thrust.

 

8.     Power Sector

1.     Incentivise MSMEs and domestic settlements in the form carbon credits which had been earlier a popular mechanism. This will help check power wastage.

2.     Provide subsidy on domestic production of Solar PV, Wind Power, Power storage manufactured in collaboration with MNCs thus maintaining international standards and enhanced system quality checks.

3.     Set up solar PV plants especially along dry coasts for eg Gujarat to fuel Desalination projects to be built on dry river beds due to construction of dams and engulfed by sea water or on sea water estuaries as the ones in Kutch so that the rural villages get adequate water supply from such projects for their domestic needs . This will check both migration of villages and migration of businesses in such small towns.

6. Employment

1.     The factories Act, labor Act needs to be reviewed to suit not only the Public Sector Units but at the same time private sector MSMES which include the small cap, medium cap and micro units.

2.     Labor of all types in the entire value chain right from Class 4 employees to Middle Management level need to be organized in terms of wages and security benefits classifies as per sector further discreet to the type of industry.

3.     Social Security Schemes need to be reviewed in terms of its original purpose as constant amendments have made such schemes vulnerable to its own objectives.

1.               In case of EPFO benefits, employees to be provided with EPFO cards similar to ATM cards along with online transactions as many of the Class 4 workers are computer and mobile illiterate. Also there should be a EPF/PPF App on similar lines of NPS for mobile users.

2.               ESIC benefits are having very low transmission benefit unless and until ESIC network hospitals do not get larger coverage. Computer chip ESIC card is the need of the hour for fasciltatative admission of patients.

3.               LIC gratuity schemes should have a larger coverage and the number of years for gratuity payment should be shrunk to 2 years . The gratuity scheme has now become defunct due to its applicability being in doubt as employees prefer more CTC in hand due to high food inflation rates and lack of desire to save and the movement of employment shrunk to 2 years .

4.     Central Employees register of both public and private sector needs to be created linked with AADHAR and PAN card with linked bank account so as to enable  government to credit Dearness Allowance if food inflation whoops above 2.5%. The DA can be based in accordance with present calculations. This will lay off additional burden on the employers in case of rising pressures of food inflation as companies are not in capacity to serve the employees in case of rising food inflation which is not in their control.

Lastly Government’s intention should be to collect revenue and not prosecute business community or harass them for few stray cases as this dithers away domestic and international investors.

Central Government and RBI should not think at this stage about fiscal deficit but should go ahead with capital expenditure in regard with central government and states for survivalof economy. If economy survives then only it will revive.  If economy does not revive there will be massive law and order problems due to rise in unemployment.

Fiscal & structural reforms are the need of the hour. Change mindset of the Tax Officials

Hospitality and travel sector have been totally impacted which needs total support by state and central both by reducing interest and taxes.

Petroleum products and interest rates are all time low. This is an opportune time to encourage foreign investment. And borrow foreign funds to support the manufacturing and infra sector and MSME. Organisations like SIDBI , NABARD can borrow and fund this sector.

There is also need to corporatize the agro & agro based sector for better yield .As this is a better moment for markets.

There is also need for having faith in business community and realization by various revenue and other authorities.The present situation and circumstances need support in a tax friendly manner to the business community for eg the recent IRS association representation to the government was not keeping in time with present situation nor they are aware of ground realties and circumstances.

Borrowing in India is hardly 50% of the GDP where as world over the developed countries borrowings are over 100% of GDP so government has enough room to print money and come out with an appropriate package for supporting present situation.

Structural and economic reforms to boost growth , employment and bringing India to lead towards vibrant economy.

There is the need to repeal FEMA and IBC Act and also RBI which manages regulatory and monetary policy should be separated in two institutions , one for monetary and other for regulatory. Changing the law to avoid the replication of  Vodafone case- no recovery of tax so far.Nokia case was very badly handled by the tax officials-rendering thousands of workers unemployed because of tax demand.

All stakeholders should be consulted while framing FTAs.

Government should work on fast track otherwise we will miss the bus .Streamlining rules and regulations have led to litigations more than 80% litigations are with government agencies. Thus loss of revenue to both government and businesses, loss of time , hefty fees shelled out to legal consultants etc. It is statistically correct that in each case government loses 80% of revenue.

Post an early lockdown , sealed  areas should be identified as containment zones. And the other areas should be opened in cities, metros and outside city areas.In case labor issues arise in case of any labor being detected complete factory/commercial premise should not be closed . Instead the area should be thoroughly sanitized and disinfected and operations should start immediately.

Hope our suggestions made are considered favorably, said Mr. Kalantri.