The corporate wish list

Subir Roy

Senior Economic Analyst

A good example of how the corporate sector, made up of large companies, is looking at Budget 2020 is what the main players in the automobile sector, perhaps the most severely hit by the economic slowdown, want.

They are forward-looking enough to put high on their wish list incentives to push the sale of electric vehicles (EVs) around which will revolve their long-term future. The Budget should contain incentives which will tempt those in the middle class and upwards to go for EVs.

Equally long term is their desire that the infrastructure should get a boost through more and better roads being built across the country, along with more filling stations in remote areas. Where infrastructure and EVs converge is charging stations. People will not go in for EVs unless they can recharge their batteries as easily as a car or motorbike can be filled up with fuel. The technological and cost imperatives of such a network are so formidable that the government has to step in, in a big way to become the key enabler.

Aside of this, for the short term the sector wants a cut in GST rates, for passenger vehicles, from the current 28 per cent to 18 per cent, to offer a price incentive for those who have been postponing purchase decisions. This is particularly necessary as there is a regulatory imperative to come out with BS-VI-compliant vehicles which will incorporate new technology and thus be costly.

The overriding reason why the sector feels it deserves a tax break is that though cars are bought by the better off (two-wheelers of course are the vahan of the aam aadmi), the sector is intricately interwoven with the rest of the economy. Overall economic health affects a large universe which includes component manufacturers and the distribution chain that are integral to the automobile sector.

The sector that beats all others in its reach across geography and income levels, and is led by corporate bigwigs like Hindustan Unilever and ITC, is fast-moving consumer goods or FMCG. It has been famously singed by even biscuits sales being hurt, underlining the universal impact of the current slowdown.

The sense that what is good for FMCG is good for the whole economy is implicit in its Budget wish list. Right on top is the hope that farm incomes get a boost, be it through price support or income support through direct benefit transfer (three-fourth of the demand for the FMCG sector comes from rural India). If that happens, the demand for the sector will be taken care of.

In keeping with this sense of universal outreach, the sector wants personal income tax to be cut, and also all that is needed to create more jobs, vital for reviving demand across the board, at a time when unemployment is at historically high levels.

Intertwined with this is a hope that GST rates will be cut, and perhaps more important, rates merged so that the sector has to deal with a single rate. This will remove policy uncertainty and encourage new players to come in. Those will be smaller and so create more semi-skilled jobs which will add to broad-based demand.

To improve the health of the FMCG sector, the government will also have to look at the plight of small shops in the face of the onslaught of e-commerce. These account for a huge number of low skill-low income jobs. If kirana shop owners smile, so will the overall FMCG sector.

Yet another sector which includes both large and small players, and also accounts for lakhs of jobs, is real estate and construction. Whereas office space and logistics hubs would come under the B2B (business to business) category, housing — encompassing both premium and affordable — would come under the B2C (business to consumer) category. The related construction sector has been the traditional provider of jobs for rural migrants to urban centres.

A key challenge facing the real estate sector is adequate, affordable and timely finance, severely affected by the crisis in the non-banking financial sector referred to as NBFCs. Lack of finance has affected firms which sell housing and homeowners who buy, the latter resulting in unsold stocks, particularly of projects under construction. The impact of GST on build-to-lease assets has also affected costing and supply.

What the sector wants is one-time capital gains exemption for purchase by homebuyers (this will clear unsold stocks); similar one-time GST exemption (again, to liquidate unsold stocks); extension of tax holiday for affordable housing projects approved after March 2020; one-time incentive to developers to take over distressed projects; and raising spending on infrastructure projects, so that construction firms get a demand boost.

If responding to the wish list of large companies goes well beyond issues that affect them directly to those affecting the economy in general, this was reflected in what industry leaders had to say at an event. Recently awarded TVS group chairman Venu Srinivasan sought more focus on job creation in the Budget; DCM Shriram chairman Ajay S Shriram urged the government to focus on the agricultural sector; and Hero Enterprise chairman Sunil Kant Munjal stressed the importance of raising spending on the infrastructure.

What all this underlines is that large companies with high-powered executives earning astronomical salaries and working out of swanky corporate offices are not at all that removed from the world of the ordinary consumer and the overall health of the economy. If you take care of the current slowdown, so that the ordinary consumer benefits, the corporate sector will be critically benefited too.