Minister of state for industries Ashwani Kumar is a lawyer by training. The Congress Rajya Sabha member from Punjab is in charge of the government’s arm to promote industrialization. In an interview with Mint, he spoke about the challenges facing the economy and the need to manage the right balance to accommodate the concerns of different interest groups. Excerpts:
When it comes to FDI (foreign direct investment) in retail, the Indian Council for Research in International Economic Relations (Icrier) study (reported in Mint on 12 and 13 December) shows that there are two sides to the story: small retailers who are affected and consumers who get better deals. How do you balance these concerns as a politician?
The end beneficiary must always be the consumer, that is the first fundamental of any progressive policy change, particularly in a democracy. To the extent new methods of trading, new scales of trading can bring benefit to the consumer, it is desirable. But it is equally true (that) in order to empower the country as a whole, you cannot be a party to policies that will lead to large-scale unemployment in a time-frame which is unacceptable.
Minister of state for industries Ashwani Kumar
Therefore, the perennial challenge in political economy has always been to harmonize two necessary objectives which, at certain stages, seem to be competing values. That is why we have commissioned the two expert bodies..., namely, Icrier and NCAER (National Council of Applied Economic Research), to prepare a report for the government’s consideration that will take all these factors and priorities into consideration and come out with an empirically sustainable finding which can then be discussed and thrown open for debate.
I have no doubt that the further opening up of the retail trade in any form will not be possible until there is a broad political consensus in the country. However, it is equally true (that) in the long run, no nation’s economic policies must ever be held hostage to untenable political rhetoric. Therefore, the attempt within the government is to come up with proposals that are credible economically, intellectually and politically, and to build a consensus around it before proceeding further.
Queering the whole pitch is the rupee appreciation which affects exporters and can hurt your constituencies. As a politician, how do you address the issue?
There is no doubt the hardening of the rupee and hardening of the interest rates have hurt the competitiveness of industry, which has led to reduction of exports, a downturn in industrial production, possibly some negative impact on employment, which is a matter of very serious concern.
We have taken up the matter with the finance ministry, indeed the Prime Minister himself is seized of the matter. This is a real issue. The Indian economy was definitely growing on the back of sustained exports. We, therefore, would like to come in with purposeful policy intervention to sustain this growth.
Now, the economic principle, on the other hand, which cannot be displaced with intensity of feelings on the other side, is that when the economy grows, there is a pressure on the value of the currency. There is also some pressure on inflationary trends. Therefore, the wisdom of India’s monetary policy will now be tested by its ability to keep prices in check, ensure the continued competitiveness of Indian industrial sector without too much pressure on inflation. This is really a function of the central bank and the finance ministry, and they are seized of the matter.
My job is to vigorously pursue the cause of our entrepreneurs, small and medium industries, which are the largest employers in the country.
We have been told (that) by February-March next year, both these components—hardening of the rupee and interest rates—will stabilize and by that time industry will be able to align itself with the changing realities and in the meanwhile, the government will come out with a few measures. I cannot tell you exactly what these measures are, but the concern is there.
Indian trade, aggregate of imports and exports, is at about $245 billion so far; it is not that big a part of GDP (gross domestic product). A question that arises is whether it is fair that you let the fisc slip or ensure a lower interest rate in an inflationary situation and imperil the entire economy. How do you weigh these issues?
There can be no doubt that growth of Indian industry is eventually determined on our domestic production, domestic consumption and our savings rate. 95% of India’s economic development is owed to our domestic savings. Having said that, I will not minimize the role of exports, particularly in a global economy. We need to be able to generate foreign exchange to have imports and to integrate our economy in the global economy. Even with $245 billion, we are in global terms a very, very marginal player. We certainly want to increase our share in global trade and, therefore, we should not hurt exports; nor should we hurt our domestic industry. The real challenge is how do we serve both. Exports have been hurt on account of external circumstances over which we have no control. That again is a consequence of globalization. You can’t today expect to go back to the old regime of protected markets because geographical boundaries have broken down.
What are the FDI trends now? What is FDI net of private equity?
I don’t have the figures right now, but I know that $17-19 billion is this year. In 2008-09, we expect close to $30 billion FDI (including private equity). We are more or less on target.
On the political situation, are you getting a sense from investors there is concern on stability, not of just polity but also policy?
Foreign investors always watch the political scenario of the country where they are investing. But I have not got distress signals from any segment of industry saying that the attitude of some of the parties is causing them grave concern. At the back of their mind, they might be having some concern. I think the business community, including the international investment community, has come to conclusion more or less that the direction of India’s economy is not going to be fundamentally altered and the fundamentals... continue to be buoyant.
With the advent of investments by sovereign wealth funds, are there security issues that have come up in FDI? Isn’t there always a bit of friction between security concerns and investment needs?
There has been expressed concern in responsible quarters about certain security considerations in certain kinds of investments from certain destinations. This is a concern that is not new to India although it has come upfront in economic discourse recently. There is nothing exceptional about this concern. However, my personal view is that at this stage of India’s economic development, nothing should be done that dents the climate of investment. We are, therefore, in active consultations with all concerned to ensure the concerns of security, which will always be overarching, are harmonized with an investment climate that does not dent India’s reputation as an investment destination.
That is your personal view. What is the government’s position?
The government has constituted a committee to go into it. Different secretaries have expressed different views. I am sure at the end of the day an acceptable proposition will be carved out.
A concern we hear on the investment side is that when an investment proposal goes through a committee such as FIPB (Foreign Investment Promotion Board), there are mixed feelings as some issues get deferred. After the Vodafone clearance, there was a move towards more transparency. How is the government resolving this, as it might not to be keen to lose some discretionary power?
That (FIPB) is the mechanism that allows different views to be distilled and discussed in the most transparent manner. If people in the committee have doubts, so be it, those doubts must be resolved. That is what we understand by transparency and governance.
How are you using economic policy to address the issue of internal strife in the country?
I was repeatedly being asked through unstarred questions (in Parliament) as to whether government has a policy to promote employment in districts where there is chronic unemployment. Unemployment, alienation, poverty, terrorism and law and order are directly interlinked.
I have directed that all the existing data of the Planning Commission on the causes of industrial backwardness in some of these districts be studied, because industrial backwardness does not have the same cause in every district.
On a broad basis, our focus is to bring connectivity, infrastructure, physical connectivity so that you create an ambience where industry can become viable.
That is not what an entrepreneur will do. You will never have jobs without massive industrialization.