We should look at FDI from China with safeguards: CII President Memani

Memani said the government should fast-track disinvestment of public sector units and use this capital for some large transformational projects

Having delivered on a long list of reforms, the government should focus on reducing the factor cost of production in sectors such as power, and further incentivising manufacturing, says Rajiv Memani, president of the Confederation of Indian Industry (CII), in an interview with Asit Ranjan Mishra. Memani also suggests that the government should fast-track disinvestment of public sector units and use the proceeds for some large transformational projects. Edited excerpts:

 

Q. The government has undertaken many reforms in the recent past, including goods and services tax (GST) and labour. Which are the areas where you think more can be done?

 

The government has been undertaking reforms for a long time now, but there is a very palpable sense of urgency that one can see over the last six months. We are living in very interesting global times. Because of geopolitics and geoeconomics, things are very, very dynamic in every respect. So, reform has to be a very, very constant process — whether it's around power, logistics, labour, land, what can be done for opening up other sectors, and what can be done for ease of doing business. Those are some of the things that have been there.

 

Q. What are the top three or four priorities the government should be focussing on?

 

For the government, the biggest priority is to encourage manufacturing much more. And the way to encourage manufacturing is really to see how we create greater value addition in India, which requires some deliberate action and much more focus on the competitiveness of the economy.

 

We feel there has to be an inter-ministerial group, so that we have a very clear strategy on how we should encourage manufacturing in India. That could mean technology tieups, some policy support, and clarity on what the Customs duty rate should be over the next three to five years. We have identified some items like compressors, wafers, APIs (active pharmaceutical ingredients), and some chemicals. I would say that's one big area.

 

The second is how you reduce the factor cost of production. So, for example, if you look at the power sector, because of the cross-subsidisation, industry has to pay almost ₹1.5-2 per unit more. Even if you're using a captive power plant, the access charges are much more on the higher side. Also, the accumulated losses of the state electricity boards are going up by almost ₹2 trillion every year. So, one big idea is privatisation of state electricity boards. The central government will have to see if there are some areas where they can provide soft incentives or hard incentives to states for doing that.

 

On land, some states are already working on this area, but there's free land available with the government, PSUs (public sector units), etc. Likewise, the government had said that they would be establishing 35 industrial parks, about five of them have come up, if we can accelerate that. Can some of those industrial parks that are taken care of by the government be managed on a public-private partnership basis?

 

Disinvestment, obviously, is another big thing, given where the markets are today. The value of the government stock is almost about ₹45 trillion. So, if every private player is using this opportunity to strengthen their balance sheet, the government should also be doing that. And, one should be using this capital in a very strategic way so as to assist states in privatisation of state electricity boards, do some large transformational projects like high speed rail, because that improves the efficiency of the economy and creates much greater manufacturing opportunity.

 

A sovereign wealth fund of $50 billion, raised out of domestic capital, should be created over a period of five years. This fund should be focused on advanced manufacturing, technology, and strategic resources both in India and globally. Also, it should focus on providing a little bit of risk capital in areas that are of long-term strategic interest where capital is not easily available for Indian companies.

 

Q. What is your view on amending the Press Note 3 and allowing greater foreign direct investment (FDI) from China?

 

We should look at FDI from China when it comes along with technology and greater manufacturing competitiveness in India. As long as there are safeguards on equity ownership, as long as it doesn't compromise any national interest of the country, CII's view has been that to some extent, the Press Note 3 should be relaxed.

 

Q. The rupee has hit an all-time low. Do you see it as an opportunity or is it a risk?

 

It's very hard to say. Any sharp movement is not good. So, too much volatility in any currency is not good. For exports, this makes it more opportunistic, but also the cost of capital goes up when you have this kind of movement in currency.

 

Q. Do you expect the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) to further cut repo rate in its ongoing meeting?

 

Industry's view is there should be a rate cut, given the fact that the inflation numbers are very low. And also given the fact that relative to other economies that we are competing with, our interest rates are still higher by 3-4 per cent. The interest rate should be coming down, but it has to be seen in the broader macroeconomic policy context. When you have a slightly weakened rupee, then you have to look at the interest rate cut in that context. But definitely, given inflation, and the focus on growth, the industry view is that interest rates should come down.

 

Q. What are the big tax proposals that you have for the upcoming Budget?

 

The government has done a lot already. So, our approach has been more on simplification. So, for example, in the case of income tax, there are alternative dispute resolution mechanisms such as APAs (advance pricing agreements), and advanced ruling authorities. Can we make them much more effective than where they are today? Can we look at alternative ways of mediation? There is a big clog-up that happens at the CIT (Commissioner of Income Tax) appeals level. So, we have made very clear suggestions on how we can reduce the number of disputes at the CIT (appeals) level? Then regarding mergers and acquisitions (M&As), some of the rules and laws need some level of simplification. While GST is not part of the Budget, we have told the government even if you can't reduce the multiplicity of audits at state level, you can cut the multiplicity of audits at the central level. The government had rationalised the Customs duty structure last time, can we rationalise it more?

 

Q. On ease of doing business, Commerce and Industry Minister Piyush Goyal has said he is preparing the Jan Vishwas Bill 3.0. What are the issues you think should be resolved through this Bill?

 

On ease of doing business, many Acts don't have a statute of limitation, while some Acts have a much longer statute of limitation. So, can we limit the statute of limitation to three to five years? There is a lot of pendency of cases. In many cases, when parties — whether government or any other party — lose, they just go for one appeal after the other, and there is no negative consequence. There has to be some disincentive for doing that, so that you reduce the number of pending cases.

 

Decriminalisation is a big ask in many Acts. We should be trying to push for decriminalisation as much as possible, so that, you know, criminal action can only be taken in fewer cases. The other thing we have suggested is that each ministry should digitally publish an updated, clear, and comprehensive list of requirements such as fees, timelines, and grievance procedures that one has to follow.