Naina Lal Kidwai, president of the Federation of Indian Chambers of Commerce and Industry (Ficci), says lower interest rates alone won’t kick start the investment cycle in India, and a lot more needs to be done to rebuild investor confidence. In this concluding part of a two-series interview with Parnika Sokhi, Megha Mandavia & Raj Nambisan, she discusses her concern about foreign investment turning away from India’s doorstep:
You talk a lot to industrialists. What’s behind this call to enable kickstarting of the investment cycle when capacity utilisation still has a lot of headroom?
I think capacity utilisation is at a reasonable level of 90% plus in a lot of industries, which normally is the threshold to kickstart the investment cycle. The worry is it hasn’t kickstarted so what do we need to do to ensure it happens? One big demand is to lower interest rates. Sure, lower rates themselves won’t make a difference, yet we need to take that step to build confidence.
But the impact of lower rates will kick in only a year down the line...
Correct. The issues are at many levels. Around land acquisition, regulatory environment, stable tax regime. The general investment environment needs adjusting at every level. People should feel the ease in doing business compared with the experience of the past couple of years. At Ficci, we have a lot of issues around the Land Acquisition Bill. We understand why it is there and there are provisions there like R&R (resettlement and rehabilitation) and annuity which would be very difficult for the industry to administer. The good news or counter to that is there are new rules proposed in the new manufacturing policy which would suggest actually there will be manufacturing zones into which the industry which wants to invest will be allowed to contend issues relating to land acquisition etc. So, it may help some projects.
Won’t that take a lot of time…
I think first of these actually could be after next six months. So, that’s not so far down the line.
So it’s a mutation of the SEZ concept…
Yes, the SEZs have been a mixed bag. The new policy hopefully has taken on board all that didn’t work there and address that. The provisions in the National investment and Manufacturing Zones (NIMs) is not all about hard infrastructure like roads and ports. There is also the soft infrastructure of tax, customs and excise as well.
Is the Delhi-Mumbai Industrial Corridor (DMIC) a natural corollary to all this?
It’s a great project, conceived very intelligently with absolutely upscale infrastructure and investment, and support from Japan. The best companies around the world are looking at it with great interest.
With labour quite stress-free in the geography compared with elsewhere…
I think it’s is a mixed bag. What must also be looked at is that our policies have been made for possibly 1.5-2% of the total labour force. Policies need to be more inclusive.
But DMIC won’t essentially be about labour-intensive industries…
It depends. Because, when you create townships, it could mean anything. Large industries come with their entire supply chain. So there will be opportunity for small and medium industries as well, and the menial jobs.
The National Investment Board did not come into being…
The idea behind it was to have a cross-ministerial approach at the Centre. That’s now being addressed in a different format. The crux of the matter is, things are getting more focused.
So net-net, there’s just a difference in nomenclature. We’re essentially lapsing to the existing system...
Did the existing mechanism meet to resolve issues? The mechanism was in place but is it being used? Are the meetings being called to resolve the issues at the PMO level and at the government secretary level? There is that change now.
Are corporate finding the decision-making process faster?
Sure there is renewed energy. The good news is that Bills are getting passed and therefore the sentiment is better. People have not given up, which they did last year. The desire for change is beginning to spawn the first green shoots. This positive sentiment should translate into execution – that’s more critical than the sentiment.
What is the feedback you are getting from corporates?
Hope is still there based on the fact that there is some movement. Is it fast enough? No. Can we push to ensure that it gains momentum? Yes. We need to act in terms of domestic investments and foreign investments into India as well.
Because unemployment issues could detonate…
Absolutely. And we need the investment. It’s because of the backlash of the last two years the sentiments towards investing in India has suffered. There is a lot of capital looking at India. It sees the consumer opportunity, sees the talent in the services sector. Is India giving them that opportunity to invest here in the way that they can handle? That’s a concern. We need to draw in the money sitting on the fence -- some of which is even turning away to other destinations. So the marketing of India as an investment destination is crucial.
What are the chances of GST getting through?
We are working very hard on it. It is something Ficci will not let go. It will add 2% to the country’s GDP. Anyone who is stalling it is to be held accountable. But it’s too much to expect as a Budget announcement.
What’s your feedback from the states?
There is at least a recognition that to be seen as not supporting this is akin to not being patriotic. We, at the industry level cannot recognise the inter-party issues, inter-governmental issues as the reason it is being held up. Their only concern is will their tax collection go down. So if the Centre can assure that’s not the case or that it’s actually better, then good.
But having GST in some states and not in others can be very complicated…
Of course it complicates things. But let’s not look for the Utopian solution and work with what we have. The benefit of GST will be there for whoever rules. So in many ways this is a very ideal year to launch it considering the elections in 2014.
What are the positive signs you see in industry?
I am seeing brown shoots, or the brownfield industries moving ahead. I think that’s more important than greenfield stuff. Remember, we, western Europe and the US. All of them are looking better and to that extent the news is more positive this year than last. One of the areas Ficci will also work towards is the Look East Policy.
How East is East?
Every country from Vietnam to Japan. China also, of course.
But we already have a problem with gold imports from Thailand @ 1% duty...
I think a gold is a very different issue because of our national psyche, compared with other issues in auto or steel. But sure, it’s one area we will have to tackle though the fact is that we have a favourable FTA with Thailand.