Tax a fundamental issue: L&T CFO Raman on retaining labour in India

The top finance executive of India’s largest engineering firm, Larsen & Toubro (L&T), highlighted India’s taxation system as a fundamental issue, referring to labour migrating from India to other countries.

“The biggest differentiator is the tax-free income there versus growing tax here,” said R Shankar Raman, chief financial officer and whole-time director for L&T, while responding to a question about what is required to attract labour.

L&T’s management has been highlighting labour shortage concerns for the past several quarters, pegging its own labour shortage at about 25,000 to 30,000 workers. Many of the engineering and infrastructure sector’s domestic labour, according to multiple industry executives, find working outside India, particularly in oil economies such as West Asia, more lucrative. Raman’s comments were made in a similar context.

“The Government of India expects everybody to pay tax, except the agriculture sector,” he added, further stating, “Now, if we keep grossing up the tax liability it is a vicious circle.” He concluded, “This is a much deeper issue and requires a lot of concurrence between the government, the industry, and the population.”

Commenting on L&T’s own labour requirements, he said, “For an order book of our scale, we need to keep data on 2 to 3 times the needed labour accessible. The organisation needs to go deeper to find resources (human).” As of June, L&T was working on an outstanding order book of Rs 4.9 trillion.

L&T in its press statement also noted, “With the Union elections behind and the likely political stability, the government’s continued thrust on capex and business optimism augur well for investment activity. However, the pace of infrastructure progress could slow down due to a skilled labour shortage in certain sectors.”