The fourth edition of Business Today-YES Bank Best CFO Awards, held at New Delhi's ITC Maurya on June 3, honoured some of the best financial minds in the country. At the event, Union Minister of Commerce & Industry and Textiles Anand Sharma, who was the chief guest at the ceremony, spoke on a range of issues including global economic slowdown, unemployment, the priorities for India, the manufacturing initiatives taken by the government and the current account deficit. Edited excerpts...
>> ON THE GLOBAL ECONOMIC SITUATION
It was rightly said that these are challenging times. This is the time when the true mettle of leaders is tested, be it decision makers in the government, policymakers, administrators, bankers and corporate leaders.
The last few years have not been easy for us or for the rest of the world. It is common to refer to the financial crisis of 2008/09 as one of the major factors which led to this present situation. We have to bear in mind that the economic crisis was preceded by a financial crisis. That's what made it more severe, deep and difficult to recover from. There have been a number of crises in America itself, there was also the Mexican crisis, the Argentinean crisis, and the East Asian crisis. But this one is the most prolonged. It has impacted all economies - big or small. Also, it has affected economic growth.
There was a time when we were in the state of despair. Emerging economies were better placed at that time to make interventions and to give stimulus. And we came out of that crisis. We thought we had come out. It was a mistake because no even recovery has taken place in the world and it will take a while for the economy to go back to the pre-crisis level, both from the growth perspective and the flow of capital.
If it was only money we were talking about, you could cope with a bad period. Recovery is important for various other factors too. In the developed countries, there has hardly been any recovery except for the US where the last couple of quarters have shown both job growth and economic growth. The Eurozone is zero growth. Emerging economies have been dragged down again in the projections from 5.5 per cent to 5.3 per cent this year. I hope it stays there and there is no further shock for us.
But in case of the global economy, growth won't be even three per cent and the developed economies collectively put together maybe one per cent. This is what we are staring at.
>> ON UNEMPLOYMENT
Another factor which is most important is the social dimension, both for developing and developed countries. There have been huge job losses in the world. Today, 300 million people are jobless in the world and an additional 400 million jobs will have to be created in a decade, if not more. I find this number a bit on the lower side because in India alone, you will have at least 150 million people joining the workforce in 10 years.
Youth unemployment is very high and that's leading to social unrest and turbulence. Nobody could have imagined what we saw a couple of years ago and what we continue to see - suddenly the streets erupting in rich countries. These are not phenomena we are insulated from. Why this is happening? If you look at the numbers, they are very disturbing. Twenty-five or 26 per cent, maybe 27 per cent in some of the developed countries, that's the unemployed workforce. Youth unemployment is above 50 per cent in many countries.
You are people from the business world. You deal with finance and banking. You understand this better and the corporate leaders too. It's not only that they are looking at what profits they are making. We have to bear in mind that industry as such and the financial community make a very important contribution to society when it comes to growth and when it comes to making your manufacturing competitive.
>> ON SETTING THE RIGHT PRIORITIES FOR THE INDIAN ECONOMY
There are positives, but there is also the other side which is very worrisome. The positives are that in the last two decades, we have seen the Indian economy integrated with the rest of the world. We have seen the world looking at India through a different prism, believing in the India story, investing in India and engaging with our corporates.
We have seen an explosion of technology globally and in Indian institutions. Some individuals are making us proud not only by bridging the great technological divide in India that came with industrial revolution but also becoming leaders in the technology field, particularly in communications and information technology. That's a great achievement in itself.
We have also seen Indian corporates developing the confidence to step out and engage with the world as equals. Some of the biggest mergers and acquisitions that have been made in recent years have been by Indian corporate entities. Of course, it's a debatable issue whether India has reached that stage of development that we become exporters of capital, or we need to import more capital for our own growth. When you are in a globalised world which is interconnected and inter-dependent, you have to look at both sides.
Last year was a terrible year for us and for many other countries. There are some factors responsible which are internal, but primarily there is a global dynamic or developments that have occurred which has affected us. We have to come out of that.
The only way is to take hard decisions, policy initiatives, looking at our priorities, not allowing anything to undermine the national confidence, and particularly, the morale of younger generation.
In my considered view, there can not be a greater disservice if we lose that confidence in ourselves, if we allow the young people to lose morale and if we allow the India story to go wrong. We have the capacity, both the private and public sector. We have minds and human resources who can qualify to be amongst the finest in the world and to be amongst the best.
The priorities before us are job creation, return to high growth, bringing down the current account deficit, bringing down the trade account deficit, raising manufacturing to a high level and becoming competitive in the global context.
>> ON GROWING INDIA'S MANUFACTURING STRENGTH
Manufacturing plays an important part. SMEs alone contribute 45 per cent of what is produced in this country. Today, manufacturing patterns are changing. The whole world is becoming an assembly line. Different parts of a product are made in different countries and the final product comes out of one country. We have to reach that level. We also have to ensure that we invest enough in technology and training.
We propose to raise the share of manufacturing to 25 per cent. It has been stagnating at 16 per cent. Look at other comparable economies, it is not less than 25-26 per cent. I would say the band would be 28 to 35 per cent. Can India, the country of 1.2 billion, a median age of 24 - where the median age will not cross 35 even in 2040 - afford to be where we are?
And that's what made us think, in January 2010. I was in Jaipur and it was after much contemplation, I had made the courage to make a statement saying India will have its own manufacturing policy. I was wondering why India did not have a manufacturing policy.
The conventional wisdom is that in an agricultural economy - agriculture sustains 58 per cent of our population even today - you move to manufacturing and then to services. Services, we have already leapfrogged. But services are not going to get us the jobs.
Beyond a point, services can only grow on the strength of manufacturing and that's where the jobs will come. It is not a question of an option. It is an imperative, a necessity for this country to really push hard and that's why the National Manufacturing Policy which will actually be transformative. We proposed to establish National Investment and Manufacturing Zones (NIMZ). That will be the principal instrument.
Now, what are these? These are not only industrial clusters. These are standalone integrated green field industrial townships. This will not be like the SEZs. We know that land is an issue. We know there are delays which frustrates our domestic and foreign investors.
We are not comfortable as Indians, when numbers come out and our ranking is very poor in areas such as 'the ease of doing business' and 'starting up businesses'. None of us was happy when we saw the World Bank report which ranked us. We are trying to change that. So, these NIMZs will not only be standalone greenfield townships, but will also be self governed, self regulated.
For the first time, effectively, we have put in place a single window approval mechanism. There are only 12 which have been approved in the country. I don't see more than 18 coming up in India ever. But if 18 industrial cities come up, it will change India, it will make India the manufacturing hub of the world.
On October 24, 2011, the cabinet approved it. If I have to share it with you, it was not easy to have the policy, because we have a mindset where people don't want to let go of controls. There are turf issues and we had bruising battles to put together the policy. The government of India will develop these in partnership with state governments.
Land is the equity of the states. Only those NIMZs have been given approval where the states were informed well in advance, have created the land banks or had created the land banks. Our industrial investors will not have to buy land or register land, land will remain the equity of the state and the infrastructure will be funded by the government of India.
>> ON THE HIGH CURRENT ACCOUNT DEFICIT
The other issue is the current account deficit, the fiscal deficit, the volatility of the currency and how it affects all of us. We are a major importing country. Can we afford not to import what we need? The answer is no. We have to import petroleum products, oil and gas. We have to import fertilisers. We have been importing huge amounts of edible oil. Whether it is good for health or not, I am not getting into.
Indians have an insatiable appetite for gold. In the last two months, we have imported gold worth $15 billion. Can we afford that? This also raises a question. Our people somehow are feeling insecure about their household savings kept in banks.
How shall we restore their confidence? To go back to savings accounts, the four per cent drop has not been a healthy one. We still have a fairly high national investment rate. But when we look at some other countries including our northern neighbour, the savings rate is higher and the investment rate is higher.
In my humble understanding, our investment rate must go up to 38-39 per cent and savings rate back to 36 per cent. We have to make a collective effort and the only way to manage the current account is to ease the pressure on the trade account.