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'World sees India as tomorrow's tiger'
Pranay Gupte, Forbes | November 17, 2006
Kamal Nath, India's Minister of Commerce & Industry, is widely credited with raising his country's profile and drawing more foreign investment. A longtime power in the Congress Party, which leads the governing alliance in New Delhi, Nath is in his third cabinet post.
He is believed to be particularly close to Prime Minister Manmohan Singh and to India's most powerful political figure, Sonia Gandhi, the Congress Party President.
At his current ministry, Nath, 60, has led bilateral trade initiatives with the European Union, Japan and Latin American countries and is steering attention to the larger South Asia region. He is a leader of developing countries in their negotiations at the World Trade Organization. Forbes Asia caught up with him on a recent swing to New York and London.
You've been touting India's "value propositions."
We are now among the world's most competitive producers of steel, automotive components, pharmaceuticals and chemicals -- besides our traditional strengths in textiles and gem jewelry.
While India has established itself unequivocally as the back office to the world, playing a key role in the business transformation of thousands of global businesses by offering an unbeatable combination of low cost and high value, we are now emerging as a major manufacturing hub because of cost-effective production and a skilled workforce.
But can't the same thing be said about China, your major competitor in Asia?
It's not an issue of China versus India. It's India and China. We have our genius, they have theirs. While the sheer population numbers alone present an opportunity for both India and China, it is India's demographic profile that holds the key to the future. India is a young country -- and it's getting younger. The India of tomorrow is an India of savers and spenders.
Even now, with comfortable foreign-exchange reserves of $165 billion, we aren't just exporters but major importers. In fact, our imports are rising by more than 35% each year. India has a large pool of skilled, highly educated workers.
Isn't there new concern that India doesn't have enough skilled workers to meet with the demands of the market?
Actually, our skills are in surplus. But we are ensuring that the level of the human-skill reservoir we have doesn't go down.
And how are you doing that?
Through increased education and the creation of more training facilities.
There are conflicting figures about the size of India's middle class -- ranging from 100 million to 450 million.
India has about 200 million with disposable income in different degrees. Various studies suggest that India's middle class is slated to more than double by the end of this decade -- every year we are adding 25 million to our middle class, almost a whole Malaysia or Thailand.
What specific initiatives are you taking to attract more foreign direct investment?
We recently undertook a comprehensive review of our FDI policy. As a result, 100% foreign investment is now permitted in enterprises in several sectors, including construction. Total FDI this year is expected to be nearly $12 billion, compared to barely $4 billion two years ago, when Prime Minister Singh took office. The good news is that these are first-mile investments -- that is to say, for new projects.
We are seeking investment, first and foremost, in our infrastructure sector: highways, roads, ports, airports, power generation and telecommunications.
The new model of infrastructure development is also being pursued through the public-private partnership route. The projected investment in our national highways alone will be $50 billion in the next six years.
Do you sense any "India fatigue" among investors?
On the contrary. There's never been more enthusiasm for India. During this trip to New York, a number of CEOs told me that they would form a $5 billion fund for investing in our infrastructure and that they sought only minimal government participation. This is very encouraging.
We also expect investments totaling an additional $6 billion in the next two years in our Special Economic Zones [SEZs]. Global brands that have set up such zones include Nokia, Adidas and Motorola.
Hasn't Sonia Gandhi sided with farmers who oppose SEZs?
Mrs. Gandhi has said, and rightly so, that under land law state governments should not acquire for industrial use or for the SEZs property that's prime agricultural land.
There was a natural fear that, with major investments coming in from abroad, rural people with prime agricultural land may find themselves in a situation where the local government, under the acquisition law, would force them to give up their property.
How are you addressing this concern?
This issue has been taken care of. The guideline clearly states that SEZs can only be developed on nonprime agricultural land. Whenever there's any land acquisition for SEZs, there will be full and fair compensation. We must ensure that there's the free market at work here, not seizure by government.
We believe that state governments should not acquire prime agricultural land under acquisition laws, but that private landowners should make the decision to sell, or not sell, based on the conditions and rules of the market.
But many foreign investors continue to express concern about the cost of doing business in India. That means, of course, corruption, not only in the bureaucracy but also in sectors such as construction.
I don't want to gloss over the problem of corruption. But I must say this is definitely declining. This has to be a process driven by deregulation and more transparency -- like the recent enactment of the Right to Information Act. Tightening legislation against corruption has already led to a large number of prosecutions at the political and bureaucratic levels.
We are attempting to ensure unshackling of various regulations so that even the scope for corruption gets eliminated. We are on the fast track -- but there is no overnight cure.
Wouldn't full convertibility of the Indian rupee be beneficial for India? Your foreign-exchange reserves are flush, and India has always been prompt in servicing its external debt of $75 billion. So what's coming in the way of convertibility?
A high-level committee has offered recommendations for rupee convertibility, and our finance ministry -- under whose jurisdiction the matter falls -- is addressing the issue. I hope you can appreciate that all I can say at this point is that these recommendations are under consideration.
Is the mind-set in India changing concerning the free market?
It's not only that the world's perception about India has changed -- our own perception about ourselves has changed. We are no longer looking for a better life only for our children and grandchildren, but also a better life for ourselves in our own lifetime. So there's definitely a paradigm shift.
Despite all the hues of parties and political alliances coming to power -- including some professing lack of faith in the economic-reform process -- reforms have been undertaken without a gap.
But some say that there's indeed been a gap, several gaps. There's a perception that the reforms have been fitful.
India's reform process has been a calibrated approach and has followed an India-specific model. That is why one of the most successful reform stories of our contemporary era is that of India. And I can assure you that it will continue to be so.
We proudly proclaim: 15 years, six national governments, five prime ministers, one cohesive economic policy, one direction -- upward. I can understand the impatience in certain quarters with the pace of reforms. But what matters is sustained reforms.
The insurance sector is one. After economic liberalization began, only 26% FDI was permitted in that sector. Now we're looking at almost doubling it, to 49%.
Similarly, while foreign banks were allowed to do business in India, the number of branches they could open annually was restricted. Here again, we're allowing these banks to open more branches each year, on a calibrated basis.
Frankly, I question why some people assert that there are gaps in the reform process. We've experienced 8% growth in our GDP year after year.
But in your lead role in world trade talks you've been termed an obstructionist because of your demands that rich countries reduce their agricultural subsidies. Are you holding up the Doha Round?
I'm not holding up any round. I've only urged the rich countries who subsidize their agriculture not to use those subsidies to enable their farmers to access markets in poor countries. The Indian farmer can compete with the American farmer, but not with the U.S. Treasury.
Is there any guarantee that India's economic momentum won't falter?
As I've already said to you, India has put itself on the radar of every investing entity in the world. The world recognizes that it would be impossible to do business without India. It is also beginning to accept India as tomorrow's tiger.
Its assets -- both tangible and intangible -- are going to play a crucial role in the way the world develops in the years to come. While India may be behind in the sprint, we are winning the marathon. Mark my words.
Source: India's Ministry of Commerce & Industry.