“I am not an economist to begin with but I think we are nearing the bottom…I don’t see credit growth to large corporates to pick up anytime soon. Most are still getting large debts in their balance sheets which I think they need to lop off. I also think there is a case for the government to give greater fiscal stimulus to the economy. Anyway FRBM Act (Fiscal Responsibility and Budget Management) provides half a per cent deviation,” Birla said at a media event here.
The Reserve Bank of India (RBI) on Thursday cut the economic growth projection for the current financial year to 5 per cent from 6.1 per cent earlier, on the back of weak domestic and external demand.
Birla said the government needs to do more than a corporate tax cut.
The government on September 20 announced lowering of the base corporate tax rate to 22 per cent from 30 per cent for companies that do not seek exemptions, and reduced the rate for some new manufacturing companies to 15 per cent from 25 per cent. Including surcharges and cesses (levies to raise funds for specific purposes), the effective corporate tax rate will drop by nearly 10 percentage points to 25.2 per cent.
The corporate tax cut followed other measures by the government to prop up slowing GDP growth. These include efforts to reduce red tape and boost foreign direct investment (FDI), and plans to consolidate state-owned banks.
“Tax cuts are always welcome. If the government decides to give us more tax breaks, that will be most welcome. They increase our cash flows; give us more elbow room to grow. The government has done a lot. I am not taking that away from that. One of the things that it could also do is to give stronger fiscal stimulus,” Birla said.
He also said that some of the corporates would like to use the package to repay debt and some would like to use it for capacity expansion.
Birla played down that push to consumers spending by way of income tax rate cut would help the economy in the present scenario.
“We can’t come out of this through a consumption story because as of now, people don’t want to spend more, incomes are low. You have unemployment happening. The best to get out of it is only through fiscal stimulus. If GST (goods and services tax) is brought down to 15 per cent, that would be huge stimulus,” he said.
The Aditya Birla Group’s chairman also said the increase in government spending on infrastructure will have an impact that would be quite unparalleled.
In response to a question around the global economy and impact on the group’s business, he said the global economy is already in a sombre mood but two of the group’s overseas subsidiary due to their location have been able to mitigate the impact on business.
He said that now, countries seem to be moving away from globalisation.
“As of now, we seem to be moving away from globalisation. Some economists are calling it ‘slowbalisation’. You are having a phase where you see more of localisation and regionalism. A global company must also focus on each region by itself and even within focal market. Regionalisation seems to be order of the day,” Birla said.
While endorsing regional business pacts, Birla defended India’s stand to refuse signing of proposed Regional Comprehensive Economic Partnership saying that there were several clauses in the pact that were against the interest of the country.