Naushad Forbes last week took charge as the new President of the Indian industry body CII, at a challenging time for India Inc. In an interview to The Hindu, Forbes responded to issues including ‘tax adventurism,’ the need for an outward looking trade policy, and an alternate way to address the bad loans of lenders through a National Asset Management Company (NAMCO). (Edited excerpts).
What are the priorities you have set forth to achieve during your tenure?
One main priority is to influence India’s foreign trade policy, to help it move from an approach defending the Indian market from incoming foreign companies to an outward-looking policy where the focus is on improving access for Indian companies in overseas markets across Africa, Latin America and Asia.
The Indian industry and the government need to consider ways to help grow multi-national companies with Indian roots, which can take advantage of assets across the world. To achieve this, we need to change our attitude within our firms and in our policy-making, which now is mostly tuned to ensure that duties are raised to protect our industries. The industry needs to provide more inputs to the government to help frame an aggressive and outward-looking trade policy where we have measures to gain access to more overseas markets.
Since the services sector is India’s main strength area, we need to look at Free Trade Agreements (FTA) and the trade negotiations at the World Trade Organisation (WTO) level in a comprehensive manner that includes services as well, and not just goods. So when countries, through mega-regional FTAs like the Trans-Pacific Partnership try to push through concepts like higher labour standards that are not directly trade-related, we need to ensure greater focus also on removing restrictions regarding labour mobility and visa regimes.
Following the ‘Panama Papers’ expose, Finance Minister Arun Jaitley had warned against ‘tax adventurism’ saying it will prove to be very costly. What is your assessment of the ?
When we look into the use of tax havens, we blur the legal and moral issues. If taking advantage of a tax loophole or incentive is legal, you should. Tax havens were created because those countries consciously wanted to attract either investment or economic activity. However, under the International Financial Reporting Standards (effective from April 2017) and the G20 initiatives and legislations such as the Foreign Account Tax Compliance Act, there are adequate safeguards .
The CII has a Compliance Code that companies can adopt on a voluntary basis. This year, we will bring out a Code for Corporate Citizenship where companies will be encouraged to go beyond compliance for the greater good of the country. India has laws that deter corporate wrongdoing, and the CII will cut off ties with firms and individuals found guilty of criminal acts. Ethical and honest people will anyway comply with these disclosure norms, corporate governance standards and CII initiatives, but I doubt if the dishonest ones are going to disclose something that is illegal just to help capture illegal remittances.
The CII has suggested the creation of a National Asset Management Company (NAMCO) to tackle the problem of bad loans. Isn’t there a moral hazard in setting up such a body and using public money to bail out promoters who could also be wilful defaulters?
The focus should be on legal issues and not moral issues such as someone’s high-consumption lifestyle. We blur the lines when we don’t distinguish between loan defaults as a consequence of businesses going bankrupt due to risk-taking and loan defaults involving criminality. High-consumption lifestyle and bankruptcy due to risk-taking are not crimes per se. The focus should be on finding out whether someone has done a crime in the process.
The intention behind the proposal for setting up NAMCO and ensuring that the Bankruptcy Bill is passed by Parliament, is to quickly address the issue of bad loans of banks. The moral hazard is if you set up NAMCO, then you are in effect seen to be rewarding excessive risk-taking and that you are always there to rescue people who make wrong business decisions. It is a philosophical question being debated the world over.