No one, government included, is happy at this state of affairs: S Gopalkrishnan

Interview with President, CII

The issue of floating a sovereign bond and the raising of customs duty on luxury goods came up in the meeting on Monday between Prime Minister Manmohan Singh and business leaders. S Gopalkrishnan, president, Confederation of Indian Industry, who was there, talks to Indivjal Dhasmana on these and other issues. Edited interview:

Was the industry meeting with the PM stormy, given that India Inc has many complaints about the economic situation?

I don't think even the government is happy with the way economic conditions are. They know that getting the (yearly) growth rate back to eight-nine per cent is very important in terms of job creation, in terms of confidence in the economy. I don't think anyone is happy with the current state of affairs. Different sections have different perspectives on this.

The issue of sovereign bonds came up. What did industry tell the PM and what is your take on that?

We need to look at how we can attract foreign money into the country. And what are the instruments available for us to strengthen the forex reserves. Details have to be worked out by the government. Definitely, we have to look at all options. This is one of the instruments. We can then look at those that are inflation-protected, as high inflation is one reason for huge gold imports.

Did the PM respond to the sovereign bond issue?

He only said he'd noted these recommendations and would come back.

The PM's Office said the meeting also discussed the option of raising customs duty on luxury goods. What was discussed and what are your views?

There were various suggestions. As long as we are compliant with WTO (World Trade Organisation) and don't create uncertainty about our policy, we should look at reducing our imports, if possible. The goods could be those which are not inputs to the industry or capital goods required. Discretionary imports can be stopped or reduced for a temporary period.

What is your sense of RBI (the central bank) choking liquidity to stabilise the rupee?

In the short term, the volatility of the rupee has to be addressed. It is the biggest challenge. Industry had operated at Rs 48 (against a dollar) not that far back; it then operated at 50-55 for quite some time and then it suddenly dropped. A sudden drop or appreciation hurts the industry. If it is gradual, that is fine. We can understand why RBI wants to stabilise the rupee. It is a short-term measure; in the medium to long term, we have to bring back our economic growth. We look at a 100-basis points reduction in interest rates once the situation stabilises in a year.

How do you expect interest rates to be cut in a year where RBI raised short-term rates to stabilise the rupee? Does it not hurt the industry?

It does hurt the industry. But there is an urgency to stabilise the rupee. We understand that. In the next 12 months, we hope the situation will change such that rates will be cut 100 bps.

At the Prime Minister's Council on Trade and Industry meeting yesterday (Monday), India Inc wanted a moratorium on repayment of loans taken for delayed projects. Will this not increase the non-performing assets (NPAs) of banks?

Today, what happens is that in many instances, say power, the project is ready but cannot operate, say for want of fuel linkages. Can we say there is a two-year moratorium or when production starts, whichever is earlier? Meantime, the issue of fuel linkages be addressed. This will not be considered an NPA, since it is not due at that point of time.