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|September 14, 1999||
The Rediff Business Interview/Tarun Das
'India is ready for divestments'
As the dates for the announcement of the general election results and the swearing in of the new government near, the focus is shifting from poll campaigns per se and the likely winners to the economic challenges that the new government would encounter. With the economic recovery being discerned of late, apex industry associations have already prepared papers on their expectations from the new government. In an interview to Neena Haridas, director-general of the Confederation of Indian Industry, Tarun Das, elaborated on the major issues that industry is concerned about. Excerpts.
What does industry expect from the new government?
One of the major issues that the industry wants the new government to look at is privatisation. Thankfully, in the last few months, people have at least started mentioning the words disinvestment and privatisation.
I think, India is now ready for divestments. To convert our public sector units into real assets, the government must divest its share to below 50 per cent. Personally, I prefer the government to hold no more than 20 per cent.
Disinvestment will help perk up the government kitty, bring back people to the capital market and create an environment for better management for the PSUs.
The next important issue is the insurance sector. The new government should pass the Insurance Regulatory Authority Bill as soon as possible and approve foreign investment in the sector. The existing services should be improved to provide new services to become more competitive and also to increase the savings rate.
Currently, the savings rate in India is 27 per cent, but it should go up to at least 30 per cent so that fiscal deficit can be reduced. The insurance sector can help the economy on this front.
There is urgent need for reforms in the financial sector. The argument given is that India escaped a major collapse during the southeast Asian crisis only because our markets are well controlled. That is true in a way, but we have to move towards capital account convertibility to be recognised as a global market.
Then, the government must complete the reforms in the banking sector and the financial institutions by implementing the Narasimham Committee recommendations. The banking sector needs a lot of restructuring, mergers and acquisitions. Only then will foreign investment happen in India. You see, the world is really worried about the stability and strength of the Indian financial sector.
Another reason for dwindling foreign investment is lack of transparency in many of our policies. The government still clears investments on a case-to- case basis and the investor keeps jumping from department to the other.
India's foreign investment policies should be made more transparent and should available for the investor abroad for reference on the Internet. We must move ahead with time and technology. If the investor is aware of the rules and regulations and functions accordingly, there is less time wasted in granting permission.
We want the government to review the labour policy. This is a subject that has not been touched by any government. Our labour policy now is anti-employment generation, and promotes discrimination. It is so antiquated in a liberalised economy that nobody wants to hire labour. We are not suggesting that we move towards the American style of hire-and-fire, especially because we do not have a social security system here. But the labour policy needs to be changed so that qualitative production takes place.
Well, these are broadly the areas that the new government should focus on.
According to the Election Commission, this time the elections are likely to cost India a whopping Rs 9 billion. The last elections, which was just 17 months ago, cost us another Rs 6.6 billion. What will be the impact of such heavy and frequent spend on elections on the economy?
Yes, the impact is rather scary. It is a very expensive affair and India simply cannot afford to have elections so frequently. Our fiscal position will be affected severely because all this money is going out of our revenue expenditure. This will lead to a fiscal deficit problem and the government will try to tackle that by additional taxation. And additional taxation is really worrying the industry because thanks to recession the industry is in no position to shoulder any additional burden.
And what has been the industry's stand on election funding this time round?
The CII issued a norm for industry that it is preferable not to fund the elections, unless there is excess pressure from the political parties. You see, this time industry itself is not in a position to spend on any election funding because it is still reeling under the burden of a recessionary phase. But there are business houses such as the Tatas who have set up an election fund which makes all its contributions in cheque. This is a transparent system and the CII has always maintained that there should be transparency in the payment.
According to the India Development Report released recently, after a brief upswing, the Indian economy has fallen into reverse gear once again. What is the reason for this?
The reason for a slowdown in the economy is the south east Asian crisis. We have major trade links with this region and crisis here has affected us badly.
So do you mean the general perception that the economy is out of the woods is misplaced?
No, the slowdown is over and I feel industry is getting back on track. We are not completely out of the woods; but, yes, we are on the way. We have started this fiscal with better productivity, exports are improving and the GDP is estimated to grow at 6 to 6.6 per cent which is much better than last year's 5.4 per cent or so. Things are looking better.
What is industry doing to improve exports?
The southeast Asian crisis has affected our exports badly, but thankfully our major exports are to the United States. So things are not as bad as it seems.
We have had an export growth of 5 to 6 per cent this year and this is a turnaround. The CII is taking several steps to improve exports -- for instance, we are conducting trade fairs (just finished one in Tanzania for exports to East Africa). Besides, our research team studies the export possibilities in each industry and provides it as reference material to interested exporters. We have also set up national committees on export missions to help the industry concerned.
The CII set up a code of conduct for corporate governance last year. What is the response of the corporate world to this?
We have always encouraged transparency. Our code of conduct was also aimed at increasing transparency in corporates. We believe, a transparent organisation is of more value to the shareholders, to the employees and to the owners. Ever since we finalised the code, a lot of companies have adopted it. And the companies that adopted it have realised that the market equity has also gone up.
The CII has been quite vociferous on the WTO issue. What are your major concerns?
We have decided to focus on a few areas such as tariffs and export potential. We want to understand as to what will be the future trend of customs duties. You see, tariffs are going down all over the world. But there should be a balance in the tariff structures, which is lacking now and this is worrisome.
For instance, in many countries where India exports sugar, the tariff is very high -- even upto 150 per cent, whereas in India, the tariff is negligible. We want to do away with this kind of imbalance. Two, we want to find out what inhibits Indian exports and we have a research team that is currently on the job.
Now that Y2K is really round the corner, how prepared is India?
India is, you can say, half-prepared. There are still certain areas that need immediate attention. For instance, the power sector is not yet fully compliant and this is really a major concern. Sectors such as civil aviation, airports, manufacturing, services et al are compliant. But ports and telecom are still working on it. They think it will be done in the next four months. Well, they better do, else we would be in big trouble.
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