Godrejspeak: High corporate taxes making India uncompetitive

Adi Godrej, chairman of the Godrej Group, says he has “mixed thoughts” on this year’s budget. While he likes what Finance Minister Arun Jaitley did to spur farm sector growth and the big move on the health insurance front, he is unhappy on the taxation front. The high corporate taxation regime, he says, is making India uncompetitive.

In the course of an interview with Fortune India, Godrej, an ardent advocate of the goods and services tax (GST), said the high corporate taxes for large companies were in stark contrast to what was happening in the United States and Britain, where governments were reducing tax rates.

“We are now one of the highest in terms of corporate taxes in the world. America and Britan have reduced them recently and (in) China (corporate tax) is low,” Godrej pointed out, adding that the lower rates in the budget applied only to the smaller companies which had a turnover of upto Rs 250 crore. “These companies are in the small sector. The larger companies which have to build the economy and create jobs are highly taxed. So we are uncompetitive and it’s not good to be uncompetitive. The larger corporates will find it difficult.”

Godrej said the initiatives on the farm sector, animal husbandry and health would add value to the economy. On the long-term capital gains tax (LTCG), a move which spooked the markets, he said the government had brought LTCG back when the withdrawal of the tax had worked well for the markets, and there already was a securities trading tax (STT) in place. “Now we have both. He [the FM] has also increased the surcharge on various taxes.”

On the move to have a minimum support price (MSP) of 1.5 times the cost, Godrej said it could have some inflationary impact, depending on what would be included in the cost and what would be excluded. “Somewhere they said land will not be included, labour will be included. So it depends on how they treat it,” Godrej said.

On the trends in the fast-moving consumer goods ( FMCG ) sector, he said the last quarter was good, and he expected things to further improve post-GST. “But it could have been further improved with the right taxes.”

He said GST clearly had a positive impact. The initial hit in terms of the transition to a GST regime was visible only in the June quarter, but overall the impact would clearly be positive. “In GST many rates were lower, therefore in June sales were affected... that corrected itself. Demand has picked up because of GST. GST rates are lower, so consumers have benefited.”

Refusing to be drawn into a direct comment on the meteoric rise of Patanjali Ayurved of Baba Ramdev and Acharya Balkrishna, the 75-year-old Godrej Group patriarch said there would be very little difference to the FMCG sector as a result of the emergence of Patanjali. “There’s always new competition. New ideas. That’ll play out. Someone has done well. What’s the difference to the sector? I would not like to comment on competitors. There have been others who come in earlier too.”

On the rise of modern trade and how the FMCG sector sees it, Godrej said modern trade was “a very small part of the FMCG business in India” and that was not going to change overnight. “It’s growing faster than traditional trade but traditional trade is also growing and we’ve served it very well.”

He said while oil prices had risen earlier, he doesn’t see oil prices rising further in the future. “Last week, oil prices came down by 10%. It had gone up too high, to my mind. Because America will start competing with shale. I don’t think oil prices will rise further. Nobody can predict commodity prices, but I don’t think [prices will rise too much] because there’s enough supply. In the long run oil prices will come down because alternative sources of energy are being used, specially solar.”

(Additional reporting by T. Surendar)