Stimulus will take GDP growth to over 7.5% in second-half: NITI Aayog chief

India has become a more attractive investment destination following the reduction in corporate tax rates but relocation of units from competitors such as China will depend on other factors as well, such as the ability of states to make their environment more business-friendly, said NITI Aayog vice chairman Rajiv Kumar. In an interview to ET’s Yogima Seth,he said the lowering of minimum alternate tax (MAT) will once again make special economic zones attractive for setting up export-oriented units and that there is a need to set up coastal economic zones, which will be much larger than the run-of-the-mill SEZs. Excerpts:

The fiscal stimulus is seen as a mega booster for the economy. How do you think it will help reverse the economic slowdown?
The stimulus will restore confidence amongst both domestic and foreign investors that the Indian government is committed to promoting private enterprise and make them the principle driving force of economic growth. It will strongly rekindle investors’ animal spirits. Moreover, it will improve India’s chances of attracting investors moving out of China and looking for alternative locations. This bold step has laid the foundation for taking the economy on to ahigher, 8% plus growth trajectory.


Do you expect the measures taken by the government to significantly push up economic growth?
All such measures impact economic activity with a lag. But surely this measure will help restore growth momentum in the second half of the economy. I expect the second half of FY20 (October 2019-March 2020) to clock higher than 7.5% GDP growth.

Do you think the government could slip on the fiscal deficit target after such a massive revenue outgo?
These apprehensions are expected but will surely be proved wrong. Tax compliance will improve and there will be higher buoyancy on account of expectedly faster GDP growth. Moreover, given the Prime Minister’s commitment to maintaining fiscal discipline, more sustained attention will be paid to mobilising higher than targeted non-tax revenues in the coming six months.

Can India emerge as a more attractive investment destination following the reduction in corporate tax rates?
Absolutely, it will greatly increase India’s attractiveness as an investment destination. This is perhaps the lowest level of corporate taxation anywhere in South and Southeast Asia.

How attractive is it for firms in China to relocate their manufacturing bases to India?
This package will provide a strong incentive for companies to relocate to India. However, such relocation also depends on several other factors on which we are competing with other countries as an attractive investment destination. But combined with a consistent improvement in our ease of doing business, as borne out by the World Bank rankings, I expect a strong positive response on this count.

What more can be done to make India more business-friendly?
Ultimately, investment and business activities take place in states and, in particular, urban centres. States will do well to benchmark themselves against the best practices in ease of doing business in some selected states. NITI Aayog is in the process of preparing an Export Competitiveness Index to encourage states to adopt such practices.

Do you think all this will also boost employment generation?
Yes, of course. With growth significantly picking up in the coming quarters, more employment is bound to be generated.

What will be the impact on SEZs and the units thereof? Will they still be relevant for manufacturing?
The lowering of MAT will once again make SEZs a preferred place for exportoriented units. I am sure therefore that units already in SEZs will now have more reason to remain and expand there.

What more needs to be done to make SEZs more attractive?
As recommended by NITI Aayog, especially by my predecessor, Dr Arvind Panagariya, we should now try and establish coastal economic zones, which will be much larger than the run-of-themill SEZs. This will bring about economies of agglomeration.