New Delhi: After 36 years,Ajay Dua retires from the Indian Administrative Service (IAS) on Tuesday. The Maharashtra cadre officer will step down from being the secretary of the department of industrial policy and promotion (DIPP), which has been the nerve-centre of policy formulation in critical areas such as foreign direct investment (FDI) and patents.
Pleasantly surprised by the pace of changes in the economy in the last couple of years, Dua, who graduated in economics from New Delhi’s St Stephen’s College and followed that with an M.Sc (Economics) at the London School of Economics and Politics, gives an insider’s perspective and dwells on some of the challenges ahead. Edited excerpts:
During your tenure, incoming FDI scaled $19.5 billion (about Rs79,000 crore). That’s a record.
The year I came in here (July 2005), the year 2004-05 had just ended. In that year, we had about $3.7 billion (of FDI) or so. We were able to take it up in the next year to $7.7 billion—doubling in the first year. In the second year, the figure went up to $19.5 billion.
Attracting FDI into the country is the result of action of a variety of people, both in the government and outside. In the government, it’s the result of action of a number of ministries. We may have had a role in coordinating the efforts, we may have had a role in spelling out policy. Again, policy formulation in government is a collective effort, ideas from one, comments from another. But there’s no doubt, one was able to get a fair amount of satisfaction from the job one did.
Do you think FDI inflows will be sustained?
I am sure. Individuals are not as important, as the confidence in India overseas, as we notice now, is something unprecedented. It gets reflected in a number of ways. In the US, the last meeting of the US-India Business Council held two months ago, the Indian minister was Kamal Nath and from the US side three people, including secretary of state Condoleezza Rice, US trade representative Susan Schwab and commerce secretary Carlos Gutierrez, were there. The Prime Minister went to Japan in December last year, the return visit (by Japanese PM Shinzo Abe) will take place in eight months. Japan is the second largest economy in the world.
The number of heads of states coming with business delegations is extremely large. This is a reflection of the business opportunity which India has begun to reflect. I think this is only the beginning. The world economy as a whole is doing much better than it has for several years in the past.
Policy matters: DIPP secretary Ajay Dua says attracting FDI into the country is the result of action of a variety of people.
How important are changes in norms in ensuring FDI?
There’s a constant effort to address two issues. One, liberalize and raise the ceiling wherever it is low and, second, reduce sectors where investments weren’t allowed. The more important bit we have done in the last year is to make it easier even where it is permissible by changes in procedures.
Earlier, a lot of activity was on FIPB (Foreign Investment Promotion Board) or government approval route; particularly with respect to licensed sectors such as civil aviation and petroleum. When an industry is being controlled through administrative ministry licensing mechanism, why should we control them through FIPB? (the) Same thing we did with respect to biotech: we put them on automatic route.
Wholesale trade was earlier on a case-by-case basis. We put it on the automatic route. I think more than changing caps or opening new sectors because there are sensitivities in the country because of local employment, in terms of political issues, we addressed much more by making the route simpler, saying, let there be no double requirement of licence.
What is left on the agenda for policy reform?
We have a long way to go. In the current year, we have set ourselves a target, which the Prime Minister has been kind enough to approve, of $30billion. Last year, also we had a $11billion increase; the momentum must be maintained. If the first three months are any indication, we are well on track. But then, when we reach $30 billion, China would have reached $80 billion. That is also on an issue. Why do we continue to remain less than half of China? The scope of increasing (FDI) is tremendous once foreign money starts coming into infrastructure, which, even today, is notattracting funds to its potential. In China, a fair amount has gone into funding infrastructure.
What are the numbers for this year? Where is the money going?
We’ve been able to reach more than $6 billion in the first three months. A fair amount is going to manufacturing, but services continue to get maximum investment: banking, telecom and some amount of money in IT software. Earlier people were outsourcing work to Indian companies; now they’re becoming owners.
What do we have to get right in policy to attract money to infrastructure?
Assurance of revenue streams and risk mitigation are issues most foreign investors are concerned about. Are they allowed to charge reasonable tariffs (for providing power, shipping services) and will the assured monies continue to flow? It is a very important issue in power. Earlier, counter-guarantees were given (which have since been withdrawn). We need an investment of $400 billion over next five years. Domestic savings are not enough to fund infrastructure.
Where are we on single-brand retail?
As of now, the government is awaiting a review of the organized retail industry vis-á-vis unorganized traditional retail industry, its impact, particularly on local employment viability of unorganized traditional mom-and-pop stores, impact on agriculture, impact on street vendors; such a comprehensive study has been commissioned three months ago. We will be taking a final view on FDI in retail.
What is the status of the government’s aim to overhaul its FDI policy?
What came out of Vodafone case was a clear recommendation that the government must look at the issue of indirect holding, which must be more precisely defined. The issues of economic interest, beneficial interest etc must be gone into. This was the recommendation of the FIPB then. Various ministries are working on it; we have not yet finished the analysis.
What is the current status of the Japanese investment expected to flow into the Delhi-Mumbai industrial corridor?
It’s a hope and expectation, which we think would probably materialize. The action is reflected in the amount of visits that have taken place to India of top-level CEOs, advisers, financial institutions and interactions we’ve had with them in Tokyo.
As you know, the Japanese are very focused people. They have given us presentations when I was in Tokyo last week. Thirty top-level Japanese institutions and Japan-based global institutions made presentations; they talked to us, our group visited the Tokyo Stock Exchange. As soon as Japanese law is amended, it should become possible for Indian companies to issue Japanese depositary receipts (JDRs) in Tokyo; it is a $3 trillion capitalized market.
Money could be available to Japanese investors who will invest in the industrial corridor. I am very upbeat; their government is very upbeat. I think it will be an important issue during Prime Minister (Shinzo) Abe’s visit (next month).
We believe they are looking to raise $10 billion from the Tokyo Stock Exchange?
This is speculation. If the amount of infrastructure to be created in Phases I and II (four and six years, respectively), is taken into account it is estimated it will cost anything between $90 million and $100 billion. We think one-third can be raised through the Indian capital market or through Indian budgetary resources; we would need to raise two-thirds of the money overseas. Some of it in the Japanese market, some in the European market and some from the American market.
We think it would depend on the sort of confidence Japanese bourses have in India. Japan, is a very big portfolio investor in India. We’re veryenthused by that. That’s why we said at least $10-15 billion would come from Japan.JDRs are not allowed at present; we’re told the amendments should be in place by early September.
In the case of patents, what happens to the Mashelkar committee report?
Our laws, even according to the Mashelkar committee, are TRIPS (trade-related aspects of intellectual property rights) compliant. So the committee’s finding arrived at this conclusion, till Dr Mashelkar wrote to us (in view of allegations of plagiarism) that he wanted to withdraw the report.
We have informed him once the report is in public domain, whatever technical changes you want to make you’re welcome to do, but the report stands submitted.
Where are we on Posco?
The chairman of Posco (Indian operations) met me last (Thursday) evening. After a long time, I found in him a degree of optimism. He informed me of the three gram panchayats in which land issues are involved, two are working for Posco. In one, he has to do promotional work.
Application for conversion of land from forest has been supported by the government of Orissa and sent to the ministry of environment. One particular mine is what the state government has recommended to the Union government.
Now, the ministry of mines has informed them that you now need to go through the process under the Mining Act. I believe there are 250 applications for that mine. The government of Orissa has to dispose the applications.
The Posco chairman (Indian operations) said the Orissa government has promised him this can be completed in two months time.
He was hoping by the end of the year he should have a compound wall around the land and have a mine granted to him in the next three months, which is a very good development.