Business Today

'I am not in denial'

Print Edition: July 8, 2012

Anand Sharma looks after three vital economic departments - trade, industry and textiles. The 59-year-old lawyer from Himachal Pradesh won his spurs in student politics and then the Youth Congress and has seen his star steadily brighten in the UPA's firmament.

He is now spoken of as a strong contender for the job of India's finance minister if Pranab Mukherjee goes up Raisina Hill to Rashtrapati Bhavan.

Sharma met Chaitanya Kalbag (CK) and Sebastian PT (SPT) the day before a trip to Brazil. The full text of the interview:

CK: I wanted to start on a broader level in terms of the very serious concern overall about the state of the economy and the fact that there seems to be a feeling that it's almost too late to do anything substantive especially where the UPA government is concerned ahead of the elections, anything that you do now in a big way in terms of infrastructure will take at least a year or more to kick in in terms of its effect. You think any quick things can be done?
AS: I don't agree in entirety with this feeling. It is true that in the evolving economic scenario in our own country but in the global context too - considering that we are living in an interdependent world, interconnected - the adverse impact has hurt the Indian economy too, particularly if you look at the capital flows, commodity prices, petroleum prices, all of them have impacted the currency (and caused) the rupee's devaluation.

Secondly, that has also contributed to the burgeoning trade account deficit. Though our exports have increased the deficit has increased much more primarily because of the sky-rocketing petroleum prices.

CK: Quite a number of people feel that because of the rapid depreciation of the rupee, even if global oil prices are falling, that benefit doesn't come through as much as it would have if the rupee had been a bit stronger.
AS: The prices are falling only marginally. The larger issue is even if you are importing at $100 you are still importing in dollars, and a substantial part of what we export, there is an import component, even in what you produce or manufacture. Not for all, but the import component is also substantial. (Those imports) will again be in hard currency. That will not be in rupees and many of the exporters have entered into dollar trading contracts.

So those who have done that, they are hurt. There is another issue - that is dealing in futures. If they have made their contracts, given the strength of the dollar…they have been hurt. They may be a small percentage, but that segment has hurt.

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Then at the same time the importers particularly in the traditional destinations I'm told have been sitting on huge inventories because of the contraction of demand, given the very weak recovery or nil recovery in many of the developed countries in Europe.

So the importers are demanding big discounts because of the currency devaluation. Multiple blows. It's not simplistic. There would be some segments that would be benefited, but overall it is not going to improve the trade account deficit at all, not even remotely.

CK: But as far as the economy itself is concerned Mr. Sharma, would you say, speaking very honestly and frankly that, you have in the past spoken out for more reforms, faster reforms especially in areas like FDI in retail and so on. There is a need right now, people feel for something that will change the popular mood.
AS: I shall comment on that. But just a very brief reference too on part of the first question, that what we do now, whether it is going to turn around the present situation. The answer would be yes. It's a question of how long it will take for the final results to kick in. The mood, the sentiment can be uplifted once some decisions are taken like fast tracking of the key infrastructure projects. They may take time but that injects both a sense of urgency and dynamism in economic activity.

So it's both the demand and the supply side from where the job creation and sustainability comes, which also has another positive spin-off - that is consumption. If there is economic activity, if incomes grow, if jobs are created, consumption will also increase, particularly of consumer goods. So again it's a multiplier. Now coming to reforms, the government has a very strong commitment to the reforms agenda.

We know that the last few quarters there has been a deceleration. We are concerned, not only about the rupee devaluation, but more so industrial production, particularly the manufacturing sector, which we want to change. Last year we had come out with the National Manufacturing Policy, which is in my view perhaps the most significant policy rollout in recent decades, with the aim of raising the share of manufacturing in (GDP) to 25 per cent, (creating)100 million jobs, but effectively cutting out delays and red tape to create the best possible model in this country with a single window clearance mechanism.

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Through the establishment of the NIMZs (National Investment and Manufacturing Zones), seven stand notified, and these will be developed in partnership between the centre and the states, where the land is the equity of the states and the trunk infrastructure will be funded by the centre, for which the Cabinet has already sanctioned the funds. Japan has come as a major partner for the established of these first funds.

The infrastructure within these zones which will be standalone greenfield industrial townships, there is viability gap funding. All the departments have aligned their notifications. These other incentivisations, venture funds, pass-throughs, for skills, for innovation 150 per cent weighted tax deductions. Setting up of an enterprise, through the sale of property which hitherto was put to unproductive use, that you sell a house you buy another house.

Once we move to the establishment phase of these investment and manufacturing zones, which will be townships, because there will be manufacturing activity and social infrastructure. 

CK: When is the first one likely to start?
AS: The work will start soon, even studies were commissioned, the consultants have been appointed, and the reports have already come in. That process is completed. So the final phase of zoning of the land by the states is going on. The land has been acquired by the states concerned. I see that in a few months' time we should move towards the next level.

Now insurance reforms are with Parliament. I hope the monsoon session will clear them. The government is keen and we are urging the opposition to support this. India's national interest lies in that. Third is the GST (Goods and Services Tax). That to my mind alone will be a single booster dose for the GDP.

CK: Is that likely to happen?
AS:  I think so. I'm pretty hopeful, and I hope that the states are finally persuaded and convinced to go for it.

SPT: For the constitutional amendment the states have to support you too.
AS: I'm sure once they agree. The states are very much a party to this process, because the committee of the finance ministers of the states is chaired by Sushil Modi (of Bihar). So once that committee has made its final recommendation, I'm sure that those would be on it. I see no reason why they shouldn't be. Election year or no election year, we have to bear in mind, governments are in office and in a democracy, the governments also change, but the philosophy should not change if you are in opposition or if you are in government.

I would also like to quickly add here that when we were in opposition, some of the major reforms the NDA government was able to push through was because of the Congress support , otherwise that would not have happened. When we were in government prior to that, those were opposed, and the bill was defeated, in the Rajya Sabha, but when we were in opposition we fully supported and saw the smooth passage.

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So we are pressing among the BJP as principal opposition party, that where India's supreme national interest and its economic growth, industrial production and job creation are linked, please do that. So we will continue trying. In a democracy, dialogue is important.

There are other issues where we can exchange words or can have a political debate, but these are not the issues which should be trapped in partisan considerations and this must also include the (FDI in) multi-brand retail. Because what India is seeking to do is entirely different from what other countries have done. It has a distinct Indian signature. It has conditionalities which no other countries have done (like) 50 per cent from the rural back-end. From modern warehousing to processing, to cold storages, the entire value chain, plus they will open up only in cities with a population of one million plus. So only 52 out of 4,000 cities and towns in India.

There again there might be many states who might not opt for it to begin with. Therefore the viability in economic terms would demand, that those who invest in a big way, they also sell to the retailers. It is pure business sense. And the policy mandates that they are obliged to sell to the licensed retailer at the wholesale price. So this entire canard, the khudra vyapari or the small retailer will lose out, not at all. That's not the question. They are not going to come in and take over your neighborhood stores.

CK: So can I talk to you about sentiment, Mr.Sharma. You've been meeting all the industry groups, like this morning you met two of them, and you know the last GDP figures showed a contraction in manufacture by 3 per cent. There is a general holding back of investments by businessmen in this country. What do you think is going on?
AS: What the industry has told me, that a couple of decisions like, what we have done, when the PM took the meeting it lifted the mood. A day before that we did the substantive (Foreign Trade Policy) amendments, which reaffirmed the government's commitment to working in close partnership with the industry. We do what is possible through interventions or new incentives to turn around the situation.

What we have done, like focus on the labour intensive sectors. The differential rate of credit is important which I have been pleading. Last year the Finance Minister had agreed to my proposals and there was an interest subvention for some sectors, labour intensive sectors, but all SMEs were included. We have extended that for another year, but we have extended the coverage also, by including other sectors including agricultural produce, readymade garments and some other sectors.

Zero duty capital goods imports was one thing, but the import of what we have done by making the scrip under various schemes available for domestic procurement. This industry has welcomed (and feel) that it will give a big fillip and boost to domestic manufacturing. You see there is a very clear thinking in what we are seeking to do, because if we go back to the FDI policy in multi-brand retail, that is again, there is 30 per cent SMEs.

People say why? Because we want domestic production to increase, particularly in non-agricultural products, and many of these multinationals which are engaged in this trade are already sourcing from India. IKEA is sourcing more than 30 per cent of what they sell in their stores out of India.

CK: In fact, I heard that they also grow cotton in a particular way.
AS: Yes. They are working very closely with the handloom sector, with carpet manufacturing, with the handicrafts sector and Ministry of Textiles has now got involved with them formally. There have been exchanges of delegations and a MoU is being entered into. They are doing a lot of work in these sectors and are making a notable contribution in design and marketing.

Why not and I expect a major investment of a single brand including IKEA. One has come from the UK. IKEA, definitely, that's in the pipeline, major FDI which should come. Now, there are states in India, agrarian states who want it. Punjab, Haryana, Maharashtra, Andhra, quite a few states are on record. In fact, the other states who had asked for (FDI) … the strongest advocacy initially was from Himachal and Gujarat. Now, they have made a U-turn because of partisan politics. What I am urging is bi- partisanship.

Who is in government and who is in opposition should not make us oblivious of where the national interest lies. India processes only seven per cent of its agricultural produce. We are the second largest producer of fruits and vegetables, close to 240 million tonnes out of which 190-195 would be vegetables and the rest are fruits. We lose 40 per cent. In the case of America, in case of Europe, more than 50 percent, they process. Here we lose. If that is saved, millions of jobs will be created. It will change the rural economy.

It is the farmer who will benefit. Today the farmer is exploited. And the consumer will benefit. So, I remain of this view that in a country where you have elected governments in the states, we respect the prerogative of the states. There are states who are keen to have it. Their right, their decision and their wish must be respected.

There are states who are not enthusiastic or may have reservations. They may change after seeing the experience and the positive spin-offs in the other states as it has happened in the past with many initiatives. But we respect the rights of those states also who do not want it and my urging always is and particularly now - let us leave it to the wisdom of the states.

It is not the Government of India which gives a trade licence. It is given by the local administration. Government of India does not give you a licence to set up a shop. It is given under the Shops and Establishments Act. It is an enabling policy. Respect our constitution and our federalism so that the ones who want it can have it and are not deprived. Those who do not want it, the government respects and the policy respects them. So the federalism, ones who want it can use it and those who do not want it, the policy respect them.

CK: You are not unduly concerned that India has lost its shine? That the "I" is about to fall out of BRIC?
AS: Yes there is an overall slowdown. There is deceleration even in China. We cannot blame it entirely on global factors. Some of the factors are our own, when you have major reforms trapped in partisan politics. But one or two big decisions can turn it around so quickly that you cannot imagine. You can turn around in weeks. You don't need years to turn around. We have seen it in the past. It will happen. I feel that the present downturn… yes, it is serious. We have moved into strong headwinds. But it should bottom out. And I remain hopeful. Of course praying for a good monsoon. That is very important for our economy.

CK: Your export targets seem unrealistic - from $300 to $500 billion seems very ambitious.
AS: But we can do it. We have to. It was $178 when we came out with the (trade) policy in 2009. Now we have reached $305 billion. So if you look at it, the addition is of $127 billlion or so. If we have been able to do that in the present climate … because we reached out to new regions. Sixty-two per cent of our exports today are to Asia, Africa and Latin America - $188 billion dollars. Had we remained focused only on the traditional destinations where there has been a sharp contraction and demand has not come back; we would have been in serious trouble. We are continuing with a strong diversification strategy. We have added 14 more markets under different schemes this time. I know the challenges. But we work in close partnership with industry. We have set up last July a joint task force with the government and industry, which is meeting regularly. So you can say in a structured format, we have institutionalised the industry-government interaction.

CK: Now you are spoken of increasingly as a potential Finance Minister.
AS: We have Pranab-da. I am so comfortable with the work which I am doing.

CK: Is that not a logical next step? You are looking after two huge departments.
AS:  Well, we have a job to do here. I am very passionate about what we are doing here. National manufacturing policy, FDI… Last year we recorded the highest ever FDI in a single year, $50 billion plus. My aim is to keep on expanding and doing as much work, situation permitting and leaders agreeing. So I am very comfortable here.

CK: Do you spend a lot of time trying to change the negative perception about India?
AS: Yes, we have to change the perception. We have to turn around the situation. We cannot just sit back with a sense of resignation. This is the time leadership gets tested. And this is the time to heave yourself, not the time to be overwhelmed. I am of this view. I am not running away from the realities, I am not in denial.

CK: You are also supposed to have very good relations with some of your coalition partners. Especially Mamata Banerjee.
AS: I will continue trying...

CK: You know like yesterday she torpedoed the pension reform Bill which was rather unfortunate because it was almost like there is a willful desire to constantly…
AS: I must say that if they want more consultations so be it. In a coalition you have to recognize there are challenge, there are constraints, there are sometimes compulsions also but we have to deal with it.

CK: If West Bengal was itself a financially strong state then it would have been a different matter…they themselves need all the help they can get…she inherited a bad economy.
AS: She has. And she is concerned; she wants Bengal to grow. We will work with Mamata. I feel that some of these decisions will actually help Bengal. This is my considered and honest view. Let's see. Things don't remain frozen in politics.

CK: You must be meeting a lot of ambassadors who come and talk to you.
AS: I do.  

CK: What's their feeling? What do you hear from them?
AS: It's always mixed. Many of them are from countries where they also have huge problems of their own.

SPT: What about FDI from China? You seem to be not averse to that, either. How much Chinese FDI do you expect?
AS: It is for them to decide. They have money. They have companies which have good experience in infrastructure. In China it has reached a point of infrastructure expansion which China has, where it'll slow down. They have the capacities, spare capacities. And in the case of India for infrastructure for the next few decades…minimum 20years…infrastructure will (need investment).

CK: I keep meeting business leaders in India who say that there is a very strong partnership between industry and the government. For example if they go into Africa, the Chinese government offers infrastructure help and the company does business. So that helps a lot. In India they say that we need more of that sort of closeness.
AS: You see, we are a different system you'll appreciate. But there is a very close partnership like wherever I go there is always a big business delegation which accompanies me. We have CEO forums for our strategic economic partners. We are also supporting Indian companies to undertake infrastructure projects abroad including Africa and in our neighbourhood. Power projects, railway projects, highways, ports, which is happening . For Africa alone there are lines of credit of over $5 billion, which was announced at the last India Africa Forum summit in Addis Ababa last May. Then we have project exports. It is a new instrumentality which has been created; it was launched in 2010 by me. That's between the ECGC (Export Credit Guarantee Corporation) and the NEIA (National Exports Investment Authority). Again for that there are substantial funds which are available for the Indian companies. This is not part of the lines of credit, this is separate from that. And we are not quantifying. These are for project exports where the period involved is long.

CK: Another big fear is that China can flood India with products and cause a hollowing out of Indian manufacturing.
AS: I'm not talking about trade I'm talking about investment.  

CK: I know..which is leading to the hollowing out of Indian man power actually…you are not worried about that?
AS: They are talking about setting up manufacturing bases here. we want them to be a partner even in the establishment of one of our NIMZs…like Japan has come in a big way. Germany is keen to come, UK is keen to come, so why can't China? I'm not saying that we are opening the market. I'm worried about the trade imbalance; we have to address that. But we would rather have them manufacture here and export out of India.

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