Enam Group’s Chairman, Vallabh Bhanshali describes how GST will have a difficult transitional impact on the markets and traders as well as provide new opportunities in the investment arena.
Edited Excerpts:
Q: GST is seen as the most revolutionary reform since India’s liberalisation in 1991. What can GST implementation mean for India’s perception in the world?
A: GST is a revolutionary reform and it basically integrates India. Now this question of integrating India is a very big one and we have to see it in the right perspective. Just as one political India had to be created, then liberated India had to be created and now you are creating an integrated India from a business point of view; this explains the enormity of change and the enormity of difficulties. Several people have contributed to the development of the current GST law and all of them have to be complimented for thinking of one India.
Q: Do you think the small players, small-scale industry will find it difficult to implement the same and that is why there will be pain to that segment?
A: What you are saying applies to every aspect of business in life that the big people are able to get advice but the small are deprived. This argument is a bit of a phony argument that how will small survive. Small businesses survived because they have sense of enterprise, they have ambition and they find their own method. So I do not see that only on this account that the big will get consultants and what will the small do and there are consultants who also want to reach out to small people for their commercial purpose as well as charitable purposes. So I think in today’s technological age, the small does not have the disadvantage that probably they had in the past.
Q: Do you see a one-time transition impact on earnings of companies and do you think investors will wait for the benefit to come in first?
A: There are short-term traders and there are long-term investors. I think long-term investors will have only one unanimous view which is positive. The traders will of course try and create confusion one way or the other and take advantage or perish in it. So I do not think we should even look at them.
Q: GST will have some amount of transition pain. When do you start to see the benefits coming in from this mega reform?
A: It will take 12 to 18 months for us to really see the magnitude of its impact and that one, one-and-a-half per cent will definitely come but it will come over a period of time. But in 12 to 18 months, the very tangible benefits of GST will become apparent.
Q: What does GST mean for the macros, the health of state finances, the relationship between the centre and states and growth outlook then for FY18?
A: It would. The way states and centre manage finances and look at the availability of funds will change dramatically. The states will have to be lot more disciplined as to what taxes they can impose and therefore they will become serious implementing agencies rather than tax resource raising. A devolution on to panchayats and urban towns and cities and all of that also will happen in more systematic manner because there will be no cheating of resources between the various entities.
As things stand, there is one man who collects and everyone gets one’s due, every is just focused on implementing that; using that money instead of raising that money. It will be so much more orderly and so much more beneficial because we all know that when you have scale, when you have clarity you become lot more efficient. So the tax collection will become more efficient, use of tax will become more efficient.
Q: From an investment standpoint, where do you see the opportunity in the post GST arena? Consumption and logistic companies have of course been direct beneficiaries. What is the investment case under the new reform if you look at the Indian market?
A: All these are short term that somebody will make one per cent extra or lose one per cent extra. I think in the long term that does not mean much. Long term clearly it is the macro benefit that will matter that if tax to GDP goes up and then we are able to use that tax for essential reforms, essential areas like infrastructure and education that will be a huge benefit.
Long-term efficiency in terms of the tax to GDP not only goes up but sustains and keeps going up at a certain gradient that will be the macro case. And most importantly you are going to see a lot more transparency in the economy. It would not happen overnight but I think those will be the case that slowly we will be considered rather developed country more than a developing country so that is the dividend.
Q: The anti-profiteering focus is the government’s top priority with the set up of NAA does that safe guard the common man to get to live in a low inflation pro-growth India under the new GST model?
A: It is a matter of conjecture to what extent the law will be effective or to what extent the traders in the first place will be able to take advantage of this. But it is a constant cat and mouse game. We have had laws and we have had tax evaders or law evaders. It is endemic to our culture that people do try and take advantage. But to the extent, no law has been debated as widely in a bipartisan or a multipartisan manner. A lot of precautions have been already built into it. So even if this cat and mouse game plays out, the degree will be much less. The consumer must feel more protected.
Q: Aside of GST, it has been such a news heavy week. Do you see the NPA problem needing solution soon enough?
A: There are lot of triggers for growth in the country from governance to now in expenditure on infrastructure and other areas or general sense of reform and so on. But clearly NPA is very-very major problem. In itself that does not lead to growth but to the extent that over a period of time the banks will be recapitalised and they will have some capacity to lend, that will be some contribution to growth but the fact that we are resolving our problems, we are creating an environment where problems are getting resolved that in itself creates confidence in potential investor’s mind or perspective investor’s minds and that will be a plus. But it does not automatically result in additional growth.
Q: So do you think haircut on banks is a must and the pain of haircuts should be taken soon and then move on?
A: In countries like US, the haircuts are taken and forgotten. In our country, the reality is the same but because of having written the word socialist into our constitution we have to find more indirect methods of doing it. If we have a free economy, there will be losses. Those who cause those losses must be accountable in an appropriate manner.
So a haircut should be seen in a larger perspective that well problems are bound occur when we have freedoms but we have to move on finding the best possible solution under this circumstance.
Q: What would be your broad message at large to our viewers and investors on how to brace for new India under this tax regime? As a lot of people out there are anxious about change as mostly the case in life would be.
A: I would say there is no reason to be anxious. This is just one more thing. You should be focused only on the long term and good managements that is it. GST is just one more coma.
Source: Economic Times
