A govt can neglect growth at its own peril: Naina Lal Kidwai

Kidwai talks about the need to improve the business environment in India
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First Published: Thu, Jul 18 2013. 11 35 PM IST
Naina Lal Kidwai, president of the industry lobby Federation of Indian Chambers of Commerce and Industry (Ficci) and the country head of HSBC India.
Naina Lal Kidwai, president of the industry lobby Federation of Indian Chambers of Commerce and Industry (Ficci) and the country head of HSBC India.
Updated: Fri, Jul 19 2013. 12 28 AM IST
New Delhi: If the Reserve Bank of India (RBI) raises interest rates at its monetary policy review on 30 July to shore up the rupee, that would jeopardize growth and industrial activity, said Naina Lal Kidwai, president of the industry lobby Federation of Indian Chambers of Commerce and Industry (Ficci) and the country head of HSBC India.
Kidwai, an MBA from Harvard University, spoke in an interview on the need to improve the business environment in India and why whichever political party or alliance that wins the next general election cannot afford to ignore economic growth. Edited excerpts:
How does the industry, especially Ficci, view the state of the economy as it is now?
The key areas of concern are the twin deficits—the fiscal deficit and the current account deficit (CAD)—and the third area of concern is inflation. The fiscal deficit is high but it is being brought under control. The CAD is still high and at this level it is tougher to find the solution. The solution lies in increasing exports and reducing imports because that is what is creating problem for the rupee. In our imports, almost 70% is accounted for by our energy bill—hydrocarbon imports and gas imports.
We have to find a solution as a country to produce indigenous energy, which means commercializing gas finds that have been made, and so the recent step by the government to increase the price (of natural gas) hopefully attracts more investment and helps in commercialization of that gas.
We need to mine more local coal so that we are not importing coal. We need to do more renewable energy, which is wind and solar, so that our need to import energy (products) goes down. This becomes even worse as the rupee value goes down and our import bill becomes more expensive.
In the near term, the only solution is to attract foreign exchange into India. So the big push for foreign institutional investments (FIIs) and foreign direct investments (FDIs) is necessary. The government has announced some moves in FDI and it should continue to do more there. And regarding the FIIs, you have seen the finance minister and finance ministry are having discussions with the FIIs and the sovereign wealth funds.
For fiscal deficit, the only solution is growth and cutting expenditure. And cutting expenditure is not easy. We need investment expenditure and money for large social sector schemes. But in order to fund such social schemes, we need growth. And we need companies doing well, making profit, so that government can earn that tax in order to fund its schemes.
One of the reasons for growth slowing down is because companies are not making those large investments and are sitting on huge cash piles. Why are companies not taking the initiative?
The problem is the (business) environment is not seen as attractive. The attractiveness of India as a market remains. But the issue really is the enabling environment such as power shortage, problems with land acquisition and (stringent) labour laws.
All of these issues become part of the situation that makes companies hesitant. Also, because of the slowdown, if they see their future as a problem, then they want to keep more liquid and have more cash with them. Therefore, there is also a risk aversion that comes with (the) economy slowing down.
But most of these issues have been there for sometime. Rather than seeking solutions, why can’t industry be a part of the solution?
Because industry will invest where it makes sense for them. But don’t forget, 70% of our large industries are in the government. So the solution can also be that public sector companies, who are sitting on cash invest. Why isn’t that happening? Industry is not going to make the investments because the country’s growth rate is dropping. But the big investments are stuck, which are before the Cabinet Committee on Investment. Our analysis at Ficci shows if all those projects are cleared we would get additional 1% GDP (gross domestic product) into the country. And they are stuck for very silly, frivolous inter-ministerial issues.
When Amit Mitra was the president, Ficci opposed any hike in the FDI cap in the defence sector from 26%. Now that the government has hiked the limit, is there a change in your position?
Mitra left three years ago. And Ficci changes its position. Our official position has been we would like to see the cap increased from 26% to 49% on a case-by-case basis for high-tech purposes, and that is what has come through actually. And what is good is they (government) have not set any (upper) limit. For last two years, we have maintained this position.
RBI (Reserve Bank of India) has taken some measures to shore up the rupee, which have raised concerns about the signals it may send on the policy rate front. Do you think RBI is signalling a change in the policy rate cycle now?
It is a very big fear right now that rates could actually go up. That would be horrible for industry and growth because industry has long been asking (for) interest rates to come down. RBI began bringing down the rates, but unfortunately banks did not drop the rates because of various reasons. RBI’s recent step fell short, fortunately, of putting interest rates up. The effect it has is reducing liquidity in the market, which will bring its own pain. But we have to hope that government and RBI don’t believe putting interest rates up is the only way to stop the falling rupee.
How does the industry view the upcoming general election. What do you think should be the agenda?
We don’t have a view on what the election agenda should be. But we are pretty clear that no matter who comes to power they would do a big disservice to the country and to themselves if they did not see growth is critical for the country. Because without growth, they could not do any of the social schemes they all like to do. And that message is very, very important to accept. And then you don’t get that growth without industry. And you are not going to be able to carry all of India without jobs, for which you also need industry.
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First Published: Thu, Jul 18 2013. 11 35 PM IST
More Topics: Naina Lal Kidwai | HSBC India | FICCI | CAD |
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