India's growth should not be judged on a quarterly basis: Moily

In a candid chat, the corporate affairs minister says he is confident that some important reforms, such as the much-awaited new Companies Bill, will soon see the light of the day.

Corporate Affairs Minister M. Veerappa Moily Corporate Affairs Minister M. Veerappa Moily
Corporate Affairs Minister M. Veerappa Moily is confident that some important reforms, such as the much-awaited new Companies Bill, will soon see the light of the day. In a candid chat with Sebastian P.T., Moily also talks about contentious issues like the proposal on imposing tax retrospectively, which he agrees created a negative perception about India. Edited excerpts:

The new Companies Bill has been delayed for long. What makes you confident that it can be passed in the forthcoming Monsoon Session?

The Bill was referred for a second time to the Standing Committee chaired by Yashwant Sinha because I wanted to take the Opposition on board. The Committee has submitted its report with some fresh recommendations. We had incorporated most of the Committee's earlier proposals and are considering the new ones. The report has also been sent to various ministries as part of the consultation process. I will present it before the Cabinet at the earliest. And, hopefully, it will be passed in the Monsoon Session.

What are the main highlights of the report?
Some of the Committee's suggestions include explicitly defining the term 'private placement' as it feels the Bill seeks to regulate a new and widely adopted method of raising capital. It suggests that auditors' appointment be subject to ratification of every annual general meeting (AGM) of shareholders and also limit the number of companies a person can audit. It feels that a company needs the (National Company Law) Tribunal's nod to consolidate/subdivide its share capital only if the voting pattern changes, among other things.

The Committee was initially for mandatory CSR spend by companies…

Corporate Social Responsibility (CSR) will not be mandatory. On CSR, the panel wants the phrase that companies "shall make every endeavour to ensure" be modified to "shall ensure". It has suggested that CSR activities of companies should be directed in and around the area of their operations.

How do you react to the credit rating firms' downgrade of India's rating outlook and, now, the Time magazine calls the PM an "underachiever"?
I find the Time magazine's article on the PM lacking objectivity and it seems to be feeding off the BJP's malicious campaign. Even the economy's assessments by some rating agencies are based not on fundamentals but on perceptions. For the last seven-eight years, our economy has been on a steady growth mode. I agree that some economic indicators, such as manufacturing, have been down in the last two quarters. But, these are temporary setbacks. You should not be judging India's growth on a quarterly basis.

The economy has strong macroeconomic fundamentals that can support high growth. Our foreign-exchange reserve is about $300 billion; the savings rate is 32.3 per cent; private corporate savings rate is approximately 8 per cent; and, the investment rate is 35 per cent. In 2011-12, our exports were up by 21 per cent, and exceeded targets. Our key social indicators have also improved. For example, our literacy rates have gone up from 65 per cent to 71 per cent. The 66th round of the National Sample Survey on employment has revealed that 18 million job opportunities were created during 2005-10 on a current daily status basis. Food grain production in 2012 is also on a record high at 252.6 million tonnes. Remember, our economy is consumption-based and not export-based like China's. Our rural purchasing power parity is very high. That said, we have lined up about $1 trillion investment for infrastructure; and, once that comes, things should change.

When do you see that happening?
A few decisions will have to be taken soon, and then the economy will take off. The negative perception created now is due to the retrospective taxation, high interest rates, high inflation and low infrastructure spend. We will have to address these problems, and then the perception will also change. I have written to the Prime Minister to reconsider the retrospect taxation provisions in the Budget. Even with regard to investment, 55 per cent of the foreign institutional investment and foreign direct investment comes through Mauritius, Cyprus and Singapore. Because of the 'round-tripping', investors are also a little frightened now. A level of confidence needs to be created there as only about 15 per cent FII/FDI comes from the US and Europe.

It is now only a question of creating another perception with our strong fundamentals. Many reforms-both in the public and private sectors-are round the corner, and these are capable of giving a different picture and creating an environment for investment.

While you seem to be optimistic, many Indian companies don't seem to be looking inwards to invest…
I am very optimistic about India logging high growth soon. Many Indian companies have ambitious programmes and are looking both inward and outward for investment. This is a healthy corporate development. They are making heavy investments in India, too. For instance, Reliance Industries Ltd. Chairman Mukesh Ambani said in the company's recent AGM that the company was looking forward to investing one trillion rupees.

You have objected to credit rating firms for not sticking to economic parameters but also including political factors. But, aren't policy decisions an outcome of political machinations?
I am not ruling out that sometimes the political environment is important for investment purposes. But pointing to leaders and saying that there is no leadership is extraneous to the consideration.

What is the status in implementing the new accounting norms, the International Financial Reporting Standards (IFRS)?

We are waiting for the Direct Taxes Code to come through. Then, it will become easier (to implement the IFRS). We are hoping to implement the IFRS by 2013.

On financial reforms, what proposals of the Second Administrative Reforms Commission that you headed need to be implemented now?

In 1991, we had fiscal reforms in the form of economic liberalisation. But, along with fiscal reforms, there should also be capacity building by way of process reforms. This we have not done in a big way. In our report on strengthening financial management systems, we have suggested many process reforms. For instance, our regulators are not strong. They should not work as perpetuators of the bureaucratic angle. The mindset should change. If there is a fiscal reform and a financial system is put in place, the regulators should work as facilitators and not to undo what has been done. The new Companies Bill, when passed, will put a number of process reforms in place.

As Law Minister previously, you were for introducing commercial courts…
The Commercial Division of High Courts Bill, 2009, contemplates special courts in each of the 21 High Courts for speedy hearing of commercial disputes. The Bill is before Parliament. That will remove a lot of hassles in doing business. Also, I want India to become an important destination for international arbitration, and accordingly a Bill in that regard is before the Cabinet.

What is your view on independent directors on the boards of unlisted companies?

It is a good idea because independent directors will bring in more accountability.

What is the legacy you want to leave in the ministry?
A lot of process reforms need to be put in place. Process reforms are as important as fiscal reforms. Forewarning mechanisms and grievances systems, for instance, need to be in auto pilot mode so that scams can be avoided. We are introducing a lot of reforms in the investment process, such as on stock-exchange listings. There will soon be a colour coding of companies based on their performances and credibility. Investors will know what kind of companies they are investing in.

With the Finance Ministry opening up, speculation is that a senior leader like you could be in the reckoning…
It is for the Prime Minister or the Congress President to decide who should discharge what duties. Whatever duty is given to me, I will do it diligently.