'No one, not even govt, happy over current state of affairs'

Q&A with CII President, Kris Gopalakrishnan

The issue of floating a sovereign bond, hiking of customs duty on luxury goods cropped up in interaction between India Inc and Prime Minister Manmohan Singh yesterday. Confederation of Indian Industry (CII) President Kris Gopalakrishnan, who was there in the meeting, tells Indivjal Dhasmana that sovereign bonds is one of many options and imports of luxury goods have to be reduced in a WTO-compliant way. Edited interview:

Was the industry meeting with Prime Minister Manmohan Singh yesterday stormy, given that India Inc. has much complaints about the economic situation?

I would put it differently. I think everybody is unhappy. I don't think that even the government is happy with the way economic conditions are.

They know that getting growth rate back to 8-9% 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 in the meeting. 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. What are the instruments that are 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 the instruments that are inflation protected, because high inflation is one of the reasons for huge gold imports.

Did the Prime Minister respond to sovereign bond issue?

He only said that he has noted these recommendations and will come back.

The Prime Minister's Office came out with a statement yesterday that 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 given. As long as we are compliant with WTO and we don't create uncertainty about our policy, we should look at reducing our imports, if possible. And these goods could be those which are not inputs to the industry or capital goods required. Those imports which are discretionary, we can stop or reduce them for a temporary period.

What is your sense of RBI choking liquidity to stabilize the rupee?

It is to be understood that in the short-term volatility of the rupee has to be addressed. It is the biggest challenge. Industry had operated at 48 rupees (against a dollar), not that far back, then operated at 50-55 for quite some time, and then it suddenly dropped.

Sudden drop or appreciation hurts the industry. If it is gradual, that is fine. We can understand why the RBI wants to stabilize 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 100 basis points reduction in interest rates (RBI did not change policy rate today) once the situation stabilizes in a year.

How do you expect interest rates to be cut in a year, when RBI had in fact raised short term rates to stabilize the rupee? Does it not hurt the industry?

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

At the Prime Minister's Council on Trade and Industry meeting yesterday, India Inc. wanted a moratorium on repayment of loans taken for delayed projects. But will it not increase non-performing assets of banks?

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