Fdi Is Not A Dirty Word With Us

Excerpts:

Q: What is the basic philosophy that informs the manifesto?

A: I think the principal challenge the government that will succeed is to restore confidence in India, confidence internally, confidence internationally, and strike the right balance between these two. Secondly, so far as the economy is concerned, this period was really an interregnum and, despite all the good intentions that he (P Chidambaram) might have had, the very arrangement of which he was the finance minister would have thwarted anyone. Therefore, there is a need to reform the reform process. As far as restoring Indian confidence is concerned, there is need for Indian industry to feel confident about the reform process. The second aspect is, a very large segment of India do not feel that any benefit has accrued to them after seven or eight years now of an economic reform programme. And I dont speak simply of the American statistical figure, the 300 million Indians who we say are below the poverty line. I speak of the vast hinterland of India, 70 to 80 per cent of India, which we feel feel completely excluded from the economic reform programme. Our whole endevour has been to strike the right balance between the Indian and the international, and therefore we have talked of calibrated globalisation. I do believe, for example, if you reduce tariffs, you must have in position before that, very adequate and highly efficient anti-dumping laws and mchanisms. Otherwise you choke the indigenous for the benefit of the international. Obviously no country can afford to do that.

 

The other two major areas are administrative. I believe that Indias GDP is not correctly reflected, and that it is kept back and prevented from going on account of administration inefficiency and bureaucratic ossification. Decisions taken simply do not get implemented. Therefore we have said that fast track power projects, we are committed to see that at least work starts in 1998.

Similarly, we have emphasised physical and social infrastructure, we have emphasised employment, we have emphasised agriculture, small scale and an entire segment of the GDP, which we feel is completely neglected. The small artisan, the Bhagidar, which is really almost 40% of the countrys GDP. No one seems to pay any attention to them. We believe the entire tax regime must be so oriented as to encourage the natural tendency of Indians savings.

Q: But talking of administrative reforms. There is nothing radical in the document. Its just strengthening the steel frame?

A:The manifesto has limitations. We cannot be all inclusive. I am declaring to you now that this is one of the intents of the BJP.

Q: Internationally, the biggest thing that happened in the last seven months is the collapse of Asian economies. What lessons has the BJP learnt from that?

A:I think the first lesson is profligate borrowing. The second relates to reform of fiscal systems, principally Indian banks. I think the economic reform programme would be badly crippled if simultaneously we have a highly efficient banking system. We dont have it.

Q: Would you say that is necessary to go back to privatisation of banking ?

A:Im absolutely sure in my mind that the banking system as it exists today does not subserve the countrys economic interests adequately. Therefore this slow movement towards banking privatisation, we would encourage it, but we would ensure in the process of privatising that we adopt exactly the same procedure as for insurance, which is break the monopoly of state. Let the Indian enterpreneur in, with very strict criteria, a very strict regulatory mechanism. And only then permit the large foreign banks to play freely in India, or the large foreign insurance companies.

Q: Are you saying you would delicense the big banks soon after you come to power?

A:I am not saying that I will do it soon after. All Im saying is that we need to urgently address ourselves to banking reforms.

Q: The manifesto talks about economic nationalism. East Asias economies have been battered, and Mexicos was ten years ago. Nobody there is talking of protection for domestic industry. But, you are?

A:We are not talking of protectionism as such.

Q: Seven to ten-year protection for domestic industry ?

A:We are talking of a period of adjustment. The world protection conveys a wrong meaning. I believe in the philosophy that we can grow only on the basis of our own strength. If we destroy what is ours, on the faith that somebody from outside will come in and build India, that is an illusion. Seven to ten-year period is not a Bible. I am attempting to convey a sense of reassurance to Indian indsutry that, whether in the case of anti-dumping laws or in the case of level playing field, how can I provide a level playing field, when the two integrals of capital and technology are already slanted against Indian industry. I must provide them a breathing space. This is not protectionism. Its a breathing space.

Q: Why should the Indian consumer not get the latest, cheapest the most efficient in the world?

A:I totally agree why should the Indian consumer not get the best in the world. All I am saying is that the Indian consumer is one segment, a very important segment of the totality that is India. There is a large segment of this very totality, at least a third, there is not even a consumer. I must therefore strike the right balance. I must take care of the consumer. I must also take care of that which is not even part of the market. Because governance is principally the challenge to reconcile conflicts that are both valid. These are both valid concerns. It is precisely the challenge of the government to reconcile these concerns.

Q: But how would giving Indian industry 7 to 10 years to adjust, help the third of population that are not in the economy?

A:The two are not related. The third of the population, we have suggested, by redefining the role of the state. We feel that in the seven or eight year period, the role of the state seems to have been forgotten and the state withdrew too abruptly and too much, where it was necessary for the state not to withdraw, and continued to be too much present where it should have actually withdrawn. Too little state investment. For example, the state withdrew from cement purchase. As a consequence, the cement industry is now languishing. Third consequence: South Korea, which is now suffering differently begins to dump cement in India, further deepening the cement crisis. The state is the largest buyer of steel. The state suddenly withdrew from buying steel. The state must gradually withdraw. So we emphasise the role of the state in that regard.

Q: The coffers are empty. How would you refurbish them?

A:That is a very valid point, and its an area of major concern. I will first tackle governmental expenditure, assuming that we have the responsibility. I will move purposefully towards a scheme for retiring the large public debt, which is costing us Rs 70,000 crore annually as haemorrhage, of interest alone. That is why I am addressing my task in a ten-year time frame. These are the guideposts for the government when we are going into office.

Q: You say you would like to direct FDI to priority areas. Thats what has been happening. So what are you saying that it is different?

A:I am emphasising that foreign direct investment is not a dirty word with us.

Q: It is for some of your allies, and for some in your party?

A: No. The manifesto is a declaration of intent. FDI is not a dirty word. Every nation has a national obligation to prioritise, to lay down national priorities, in any area of governance. We lay down national priorities. FDI is welcome in infrastructure or exports, this would be far preferable than if it were in consumer non-durables, for example. It would direct, it would canalise, it would encourage FDI in these areas.

Q: How would you do that? Either you debar investment in some areas, where the foreign investor would see profit, or you leave it to market forces. How would you strike a mean?

A:That is precisely the word. You have to strike a mean. I cannot simultaneously be saying that I wish to debureaucratise and yet continue to create more and more bureaucracy, of regulation. But effective, efficient, functional regulatory mechanisms. Thirdly, the whole question of non-physical tariffs. I think governments can regulate flow of money in the directions of national priority. Wait and watch.

Q: Do you think China has been hurt at all by investment in low-tech areas ?

A:China you must recognise, the state system of China is very different to ours. A major proporation of Chinese investment is the Chinese diasporas investment. Almost 80 per cent of it is expatriate Chinese, Hong Kong, Taiwan, Macau, Singapore, that money is flowing back. Thirdly, the large part of money has come into what we call the small scale. Small scale is really what has flowered in China, and this small scale is almost entirely oriented towards exports. I think there are a great many things to be learnt from the Chinese experiment. Those are lessons that have to be Indianised.

Q: Does your manifesto categorically rule out 100 % subsidiaries for foreign investment?

A:No, it doesnt. We would prefer joint ventures. We have said 100 per cent in exports, high-tech areas, etc. We have also simultaneously said whatever we do when we come to office is not retroactive. There is no secret agenda. We have to continue to emphasise that there is a role for the state to play, that there is such a thing as Indian interest.

Q: In the competition for international capital, would you say that your policy would make India a more attractive destination for investment?

A:Yes, I will. This destination has 950 million people, a vast and growing consumer market. No investor can possibly ignore India, provided you give that investor confidence in governance, which we believe we will be able to provide. Provided the investor is sure of an open, reliable and corruption-free regime. We are committed to providing that. Its only a matter of couple of months from the time the BJP moves into office that all the right signals of confidence, both internal and international, begin to flow.

Q: The foreign investor who wants to invest in potato chips will have nothing to fear?

A:Well, for those that have already invested in patoto chips, there is nothing to fear. But another foreign investor comes and says, I also wish to apply in patoto chips. We would try and persuade him, perhaps its much better to produce machinery for patato chips.

Q: What happened to the idea to lock in FIIs investments?

A:That was denied by us at the very beginning . There is no question of lock-in period. Secondary markets are really like second hand markets. The governments greater concern is the primary market. There I am committed to providing more open, more effective, more efficient regulatory mechanisms, which take care of a great many of these problems.

If the foreign institutional investors wish to play in the secondary market of India, they are free to play. There is no question of any lock-in period or restrictions of any kind.

Q: The committee did consider it at some point.

A:No we didnt even consider it.

Q: You speak about a MITI-like organisation when in Asia we see that that leads to crony capitalism. Arent you out of step here?

A:We had crony capitalism, when we had what pretended to have a socialist regime, which was a licence quota permit raj, and there, licence became an extension of political patronage. I believe that relationship is unnatural. In trade, industry and commerce have a great deal to contribute as ideas at the level of micro-economics. They are the ones who are actually operating, whether it is refinery or cement plant or steel, automobile manufacture whatever. They must be able to sit with the government and say what you are doing is pinching us. It will create much greater and much more effective cooperation between trade, industry, commerce and governemnt.

Q: The Abid Hussain committee and a significant opinion has been that reservations should be done away with. However your manifesto seems to be going in the other direction. You are willing to look at the raising of the limit to Rs 3 crore. Youve indicated that you would want to pare down the Abid Hussain commitee report. Are you flying in the face of rational economic thinking?

A:No. I am in fact moving in the direction of rational economic governance. I just now gave the example of Chinese economic revolution being largely fuelled by what you called the small scale. Of course, there must be economies of scale, but where you need high employment, where labour is an asset, where there are millions of entrepreneurs, where small scale is riddled with all kinds of restrictive factors, where small scale, because of faulty taxation laws, begin to be spawned as children by larger industry, these are some of the wrongs that must be taken care of.

But if you were to throttle the small scale in India, you would be throttling a vast segment of Indian enterprise that is contributing so much to the totallity of Indian economic endeavour.

Q: You say you want to step up growth rate to 8 to 9 per cent. How do you propose to do that ?

A:I believe the present figures are not very accurate. I believe that simply easing out administrative methods and systems would contribute much faster to decision making. This in itself would contribute to GDP growth.

Thirdly, the largest segment of Indian industries but which is hardly part of the GDP is housing. We believe that emphasis on housing is not only a social infrastructure measure, it creates a synergy of related economic activity, consumption of cement, stone, quarrying and provides high labour. This, combined with emphasis on capital expenditure on agriculture and a simultaneous improvement of banking and services, I have no doubt that the country can achieve this.

Q: If the BJP does form a governemnt and if you are again the Finance Minister, would you approach your job with the same mindset as you did the last time?

A:Yes. My mindset is the same, except that I am a little wiser now through the experience of others.