New Delhi: India’s national budget would provide a policy boost for exports, commerce and industry minister Anand Sharma said. He also spoke on the government’s policy on foreign direct investment and special economic zones. Edited excerpts:
What is your thinking on another possible stimulus package for slowing exports?
We have to view the present situation in the global context. There has been a fall in demand globally, markets have been shrinking, manufacturing sector globally has been in deep decline. In this situation, our endeavour will be to ensure that we are able to sustain the momentum of growth.
In command: Sharma says that the country can witness some positive change as far as the infrastructure sector of the industry is concerned. Pankaj Nangia / Bloomberg
Also, as far as the exports are concerned, because exports impact directly some of the labour intensive industries, we have been concerned because there has been a fall in exports not because of any lack of effort on behalf of Indian industry or manufacturers but because of what is happening worldwide.
Exports can only pick up when you have a demand, but government has given stimulus packages, help has been there, credit rollovers have been there, various policies were announced, by reducing the interest rates, the repo rate, the reverse repo rate. All these measures are slowly having an impact. We can see some positive change as far as the core sector of the industry is concerned.
We are also looking at what more can be done in addition to what I have said. We would like some of these provisions to be extended beyond December 2009 and also availability of adequate credit in foreign exchange to the exporters. We hope that the measures that we will be recommending to the finance ministry will help in making Indian products, Indian exports more attractive globally and more competitive.
There has been talk about increasing interest subvention to exporters. Is that being considered?
Yes, that will be under consideration surely, also the availability of credit (and) adequate flow of money. Service tax was reduced. Credit rollovers are also under consideration, which we would be recommending. We’ll see what best can be done. As far as specifics are concerned, it’s what we recommend and what the finance minister eventually accepts. I will be discussing these with the finance minister but this is exclusively his domain when he presents the budget.
He doesn’t have much room because the fiscal headroom is fairly limited, given the way the deficit has ballooned and tax revenues have come down. Where is the balancing act going to lead us?
Well, I can speak for myself, and the finance minister will speak when he presents the budget. It’ll not be possible or correct for me to comment on his constraints because we do not know what you are saying about the constraints, he may have a solution to those.
The government has also taken other measures to give stimulus, you know, also to actually re-energize growth and that’s by increasing public expenditure, so that there is increase in demand. So, when we look at the commodities globally, there has been a fall but what our government has decided is to go in for large-scale construction of dwelling units, which will again ensure that there is an increase in demand and also creation of employment and sustainable incomes. And that remains our priority.
There have been apprehensions that certain measures such as excise duty cuts may actually be reversed in this budget.
I am afraid I will not be able to answer that.
I understand that. But just to get a thinking on the part of the government on where the economy currently stands, will it be the right time to consider a rollback?
Well, when you look at the state of the Indian economy, again I will say that what is happening worldwide does impact every country. Every continent has been affected adversely, every country has been. India has been less adversely affected because the fundamentals of the Indian economy are strong.
When you look at our growth rate, the increase in output, also our savings rate, our investment rate, which are one of the highest in the world, we are again crawling towards 7% GDP growth. When major economies are going in recession, I think that in itself should be very reassuring.
Speaking of manufacturing growth, industry bodies have voiced a demand for a comprehensive national manufacturing policy. Given the fact that we continue to see IIP (index of industrial production) data looking pretty dismal, what can be done to rev up the engines of manufacturing growth?
When you look at the data, it is not that dismal. Well, last year there was an increase only of 2.4 % and the main increase was in the first half up to September, maybe plus 30% and then there was close to 20% decline again. We hope that the present situation may continue until August and then the turnaround will definitely take place as some of the core sectors indications have already come.
Turnaround in manufacturing as well as exports?
(With) exports, we are going to give all possible support by making policy decisions, through stimulus package in the budget and what more can be done that can be announced in the foreign trade policy in August. We can make them (exports) attractive and globally competitive.
Will there be a stimulus package for exports in the budget ?
Yes, of course there would be, but you’ll appreciate that we cannot go and create demand in other countries.
Absolutely, you can’t bail out the US and Europe. You can only alleviate the pain in India.
Well yes, if you call it pain, we have to live with this reality, the global reality. When you talk of exports then you can export to a (markets) outside India. Within the country, fortunately, we have enough demand and that’s what I said that by increasing public expenditure, the government will ensure increase in demand, more consumption, and that will help the manufacturing industry, too.
What about special economic zones (SEZs)? What are you going to do to make SEZs attractive to development once again?
SEZs are attractive, (but) these are commercial decisions. Business houses make their own decisions. Once there is a fall in demand, then you are not too eager or enthusiastic about it. But out of more than 500-odd approvals which were given, 315 SEZs are in operation. SEZ is not only about trade or exports but also about investment, creating infrastructure (and) creating employment, which has happened. When we look at the investments which have gone into the SEZs, more than Rs100,000 crore (has been invested in them) and also exports are inching toward the hundred thousand crore mark, so it’s not that everything is dismal. We also have to look at the positive side.
Looking at it from a wider perspective, given the global economic slowdown, are there going to be changes made to the SEZ policy to enable developers to actually go through their plans as envisaged?
The policy that is there in place is sound. The rules are there. Regulations are very clear. Care has been taken to ensure that for the acquisition of land, too, there is adequate compensation and those who are landowners can become stakeholders in SEZs.
Could there be a possibility of them being able to actually sell these products in the domestic market as well?
I don’t think that we have reached that stage. Why do we call them SEZs then? There are others who are selling it in the domestic market. That will in fact be going against the objective.
So that is not a consideration?
The export cannot be within your own country.
What about continuing of exemption for export-oriented units because there is a sunset clause. Would you extend the clause?
See, I have had discussions with the stakeholders. By Friday we would have completed our work of consultations among all the chambers of commerce and finance ministry and also the exporters’ association and export councils. We have taken inputs from the industry. They’ve also met with the finance minister. I will be discussing all these issues with the finance minister. What best we can do as a government, we are committed to do—to stimulate growth and to restore that confidence.
Is there a case for the exemptions to continue?
Well, that submission has been made by the industry and we will do what we can.
Regarding foreign direct investment (FDI), how can you allay apprehensions that investors may have with different interpretations?
Apprehensions that you say are not reflected in the FDI inflows, which are fairly encouraging. We wanted rationalization across the board and facing all sectors, particularly when it came to the indirect foreign investment. So indirect FDI was an important issue. So rationalizing and simplification in fact, makes it simpler for the investors, too. It is for the first time that ownership and control has been clearly defined.
Are you saying there is no need to review FDI guidelines?
At this stage we have to see how it is functioning. We have done it to make it more investor friendly. Rationalizing and simplification cannot be in fact complicating matters.