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The Narayanan Vaghul Chat

His appearance on the Rediff Chat early on Wednesday morning was a fascinating experience.

The ICICI chairman was as erudite as ever, providing insight and illumination about the nation's fiscal policies and his new role as chairman of the Foreign Investment Promotion Council.

Preserve the transcript.

Nikhil Lakshman (Wed Sep 25 08:47:22 1996 IST):

Good morning, Mr Vaghul. It is an honour to have you with us this morning.I know you have had an exhausting schedule and it is wonderful of you to make time for this Chat this morning. I hope you enjoy the experience.

Is Mr Vaghul in?

Hello everyone!!!

Hi

Mr Vaghul: I understand you are the president of India's Foreign Investment Promotion Council. As someone with an abiding interest in Indian business, I would like to know what policies you have formulated to promote India as a business destination. What does your council precisely do? is it an advisory body? Does it have the authority to dictate policy?

Good Morning everyone. We are ready awaiting Mr. Vaghul who is expected here any minute.

Mr Vaghul: I am an Indian who has lived in Australia for the past six years. I moved to this country because I believe the opportunities in India were extremely limited. I understand you are one of the trendsetters in Indian business. I know things have changed, but what I would like to ask is has the Indian mindset changed? And can it ever change?

Good Morning everyone. We are ready here at Mr Vaghul's office awaiting his arrival. He is expected here any minute.

Hi everyone

Rediff: When is Mr Vaghul expected?

Good Morning everyone!!!

I agree with you that the Indian mindset is yet to undergo a change towards globalisation an d a much close integration with the world. We are carrying a historical baggage accumulated over the last four decades which we finding it difficult to unload. However, I draw comfort from one thing. There are signs of change in significant sections of the community which matter ultimately. I am quite optimistic that this winds of change will spead across the nation during the current decade

I agree with you that the Indian mindset is yet to undergo a change towards globalisation an d a much close integration with the world. We are carrying a historical baggage accumulated over the last four decades which we finding it difficult to unload. However, I draw comfort from one thing. There are signs of change in significant sections of the community which matter ultimately. I am quite optimistic that this winds of change will spead across the nation during the current decade

Good Morning, Sir. It is an honour to interact with you. I am a computer specialist in California and even though I have not been home for 20 years, I have followed your career which has been marked by high moral values and an adherence to Hindu values. I salute you, Sir!

Mr Vaghul, Good morning. I wonder if you could enlighten us with your vision for Indian business for the next decade. With your recent appointment, do you see India as a rival to China? Or is all that so much poppycock?

Thank you, Mr Vaghul, for answering my question. But as an insider, how would you cleanse indian business of its graft, its sleaze, its penchant for bending laws?

Sir, do you have personal faith in the reforms? where have we gone wrong? can they be reversed? are we opening much too much for MNCs?

Mr Vagul-of all the institutions you have founded which is your favourite child-which would you like to be remembered by?

Could you clarigy by what you mean " there are significant changes in the section which matter ultimately" Which is this section and what changes do you see?

Cyan : The council is an advisory body. Its role is at best as one which can be termed as one of influencing the Government's policy rather than determining it. We have at the outset, decided that India has graduated from an image building process to an investment generating phase and this phase requires not so much of promoting India's strenghts but doing a lot of work on the ground to make it possible for the overseas business to invest in India. This includes development of the appropriate infrastructure in the areas of power, communication, roads, ports and airports and also real estate development in the form of commercial and service appartments. One of our first tasks is to investigate the reasons for a somewhat tardy progress in these areas during the last five years and advise the Government as to precisely what is to be done to improve the state of affairs. Another role which we have assigned to ourselves is to work with the overseas investors to understand their difficulties in dealing with India and help them to overcome the hurdles they face. For this purpose not only have I made myself available to any investor but we intend going out and reaching them to discuss with them the problems if any. We also propose to draw lessons from past experience and advise the Goverment in regard to simplification of procedures and clearances which according to prima facie indication has been responsible for the slow growth of foreign direct investment in the country.

Hello Mr. Vagul How are you today? Well what are you famous for?

Mr. Vagul where are you now, I am is USA

Thank you for your wisdom. But what daunts foreign investors most is the conflicting tugs and pulls of governments. Each state government has its own political agenda. Instances like Enron frighten us in the West. How can the FIPC initiate some coherence and consistency in government policy?

Mr Vagul-of all the institutions you have founded which is your favourite child-which would you like to be remembered by?

Mr Vagul I am a Pakistani do your bussness have a propherty there

sean : In any change process first the critical masses will have to undergo the change before the change can permeate the entire society. The significant people in the Indian economic reform area are the politicians, the bureaucracy, the business men and the professionals. There is evidence to indicate that the political system and the bureaucratic system which accepted the reforms as an inevitable reaction to a crisis situation have now taken a more positive and constructive attitude. The mind set of business men in regard to integration with the world economy which meant the dismantlement of the Government shelter is also undergoing this change. I believe once these changes get established in this creative minority the rest of the country will also be prepared to participate in the process which involves initially a bit of suffering but ultimately could lead the country to prosperity.

Hi Technoman where are you from?

Namaskaram, sir. I hope all is well with you. I am a surgeon in Georgia. I want to know from you, Sir, whether India has any hope of being a major economic power in the near future? Is it possible to establish a timeframe for us to be a superpower? And what do we need to do to become one?

Mr Vagul I am famous in America, I am in the Band 311

Mr Vaghul-congratulations for coining a new term :'Creative Minority"!

Thank you, Mr Vaghul. I have a few more questions for you, but I'd like to listen to you for a while.

I am a friend of Princess Dianna

Cynthia : Fortunately for the FIPC state governments are vying with each other to attract foreign investment and on this issue there is not only consensus but intense competition. Enron issue was an abberation. I do not want to go into the details but subsequent events relating to Enron have proved beyond doubt the point I was making . Personally I feel that no foreign investor needs to have any apprehension on account of any inconsistencies in the government policy. The system of law and justice so well established will give adequate guarantees to any one against any arbitrary action.

I'd just like to repost my first question: What is your vision for Indian business in the next decade? Do you see India emerge on near par terms with China? Or it that so much wishful thinking?

Munzir Ali-didnt Diana teach you any manners?

Mr vagul well what is the New planet in the Milkey Way scientists have found?

Hullo, sir. I know this is a business conversation. But I cannot resist asking you: What motivates you in business? Where do you get your vision from? Was it inherited? Was it developed?

well Mr Vagul aren't you going to anwser my questions?

Well be that way Bye this sucks

Thank you, Mr Vaghul. It is freassuring to know that. However, there is no gurantee against graft is there? My friends who do business in your country tell me nothing ever moves in India unless "palms are greased".

Sean : I am too small a person to develop a vision but I can say this much - the l;ast five years of growth in Indian busines both in qualitative and quantitative terms has raised hopes of a sustained and accelerated growth for the next ten years. There is a change in approach to R & D and also the management of people and processes. I have no doubt whatsoever that Indian business will take its rightful place in the international scene by the first decade of the next century. China is not our rival and I believe comparisons with China which has become the fashion of some international pundits is not in order. It is my contention that both India and China will together offer to the rest of the world a huge market potential which will be the engine of growht for the world economy and trade for much of the next century.

Mr.Vaghul Do you think your organisation can influence government in making Long term uniform foreign investment policy. Because every time a govt. changes in a province of India or at the federal level the foreign invenstment in India suffers . In fact many fiascos such as Enron can be avoided.

Good evening, Mr Vaghul. Just got in. Good to know you are here. The Indian capital markets are in a quagmire from which it appears there is no immediate escape. Do you see any way that they can be revived?

Thank you. I think you are too modest, Sir.

Mr Vaghul. I have a complaint. You appear to be answering only the foreigners!

Cynthia: I do agree that graft is one of the major problems faced by us and we just do not know the answer as to how to overcome it but some of the recent happenings in India which have focussed on political corruption could well be an eye opener and perhaps pave the way for resolving the issue. On a much broader plane the graft in India has also in much of the world only reflects the extent of greed which manking has acquired as a by-product of the capitalist and market economy. This calls for once again a change in mind set of a different type and I wonder whether in our life time we can see this transformation taking place.

While attracting foreign investment is good for our economy, don't you think it serves as an excuse for domestic companies not to invest in R&D? How can we reverse the 'brain-drain' unless we ourselves try to move forward technologically rather than piggy-backing on foreign companies? As examples of what I mean - look at the Indian cars in the market. Look at how ThumsUp, though being a well-selling brand, sold out to Coke. What do you think?

Hullo, Mr Vaghul. I am logging in from San Francisco. I just want to know whether this coalition government is capable of taking decisions that cannot be reversed by another government. Should we invest in India? Is it safe?

Ryan : I am afraid I am as distressed as you are by the lack lustre mood in the stock market. I must frankly confess that as of now I do not see any silver lining . It looks to me that the market is looking for a trigger and I hope this trigger will come sooner rather than later.

Mr Vaghul, it is a pleasure to speak with you. I'd like to know from you what major changes you see in the banking business in India in the next five years? Will we see a reversal of nationalisation?

Oh, oh...some glitch. No problem. Mr Vaghul, what do you think this government needs to do to consolidate the reform process?

From SF: Is it safe to invest in India? Or do you think this government is unstable and its policies liable to be reversed by a successor?

My previous question seems to have disappeared.. Anyway, a rephrased question: Do you see any downside to the increased foreign investment in India, or is it roses all the way?

It is frightening that someone like yo shares that despondence about the capital markets. What could this trigger be? And is the economy not doing well enough for the capital markets to dsiplay a positive reaction?

My previous question seems to have disappeared.. Anyway, a rephrased question: Do you see any downside to the increased foreign investment in India, or is it roses all the way?

Vasumathi : Initially my motivation came from the needto achieve and the desire for reputation that follows it. But during the last five years my motivation stems primarily from the concern for public purpose rather than private gain. Whatever little success I could achieve so far can primarily be attributed to a sincere desire on my part to eschew personal gain and work for the benefit of others. Even now I am striving towards this goal even though I realise I am still a long way to go to achieve this.

Mr Vaghul, you are most kind. What are the changes you would like to see in the management of India's economy?

Good afternoon, Mr Vaghul. With our city about to pass into Chinese control, there is a feeling that India could benefit from this. What may prevent this is Indian xenophhobia. Consider the ban on foreign media which prevents publishers from moving out to India from Hong Kong. Most will now move to Manila. In your new role, is there no way you can prevail on the government not to take such politically immature decisions?

Mr. Vaghul Do you think SEBI is playing it's role properly? With scandals like Big Bull Harshad Mehta and also in the near past when almost everybody was getting rich on stocks the markets crashed and people lost confidence in stock markets.

Mr Vaghul, what do think of the disinvestment plans of govt industry? Finance Minister Chidambaram appears to be opposed by the Communists. Is there a way around it? Or will the effort always be lopsided? Half-hearted?

Mr Vaghul may I interpret you silence on my question as an indication not to invest in India as long as this government is in charge?

Bharati : Quite frankly the foreign direct investment in India is yet to pick up - We are just about two billion Dollars a year which is one percent of the total flow of private capital in the world. We plan to raise it to about ten billion which would still represent only a small portion of the world capital flow. We realise that this is not going to be roses all the way. We need to put in hard work on a broad front and bring about improvements on a variety of areas to make this possible. In view of this we just cannot talk of any down sides. The choice before us is more between a slower growth of foreign investment or an accelerated growth. We are aiming for the latter.

Ryan : The strangest thing is that the capital market in India does not reflect the fundamentals. In fact, by a curious coincidence it seems to bear an inverse proportion to the fundamentals Otherwise we cannot explain the general behaviour of the index when the economy is all set to achieve a growth rate of over six percent for the third successive year and a growth rate of more than 10 percent in industry for the third successive year. The corporates have been growing at an average of about 30 percent and the PE ratios are below 10. No Mr. Ryan, the capital market behaviour has nothing to do with the fundamentals perhaps we can exchange a bilateral E mail later to discuss this situation.

Thank you, Mr Vaghul. Another question: How can India boost its growth and cut deficit? Do you detect a plan, a method in your finance ministry's madness so to speak?

Mr Vaghul, may I draw your attention to my question?

The Chinese make magnificient use of their expat comnmunity? Do you, as FIPC chairman, have any plans to utilise the enormous potential of the Non Resident Indian community, especially in the US?

Mr Vaghul-why dont you pl answer faster!

Mr Vaghul, I hope you are enjoying yourself. I certainly am. You are everything you are billed to be.

Mr Vaghul: For tha last time. Is it safe to invest in India under the coalition government? Or do you see their policies being reversed?

Jake : I am sorry I missed your question. The government instability will not in any sense, affect economic growth or prospects. India has demonstrated time and agian that system stability is more important than government stability. India's democratic and institutional framework has been so firmly established that any investor should feel reasonable assurance in regard to the safety of his investment. Since 1991 the process of deregulation that had gone on in the Indian industry has insulated much of Indian business from the stranglehold of the government and the Indian business community is not so much concerned about what happens in Delhi as in the past.

sofee : Harshad Mehta's episode is history now and this happened at a very early stage of reform when the regulatory authority was not firmly in place. I believe that SEBI has emerged as a very strong quasi judicial independent regulatory body and I have no reason to believe otherwise.

Thank you, Sir. Do you honestly believe that Indian business has been liberated from the manacles of government largesse? One hears og government policies being subverted by businessmen at will and at leisure. What you need is a regime like Singapore. With more democracy, of course!

Sara Wu: I am afraid I cannot answer your question with any sense of authority. I am not the government - I am just a private citizen who has been given some privilege of advising the government the issue of foreign investment in media is a politically sensitive issue and has to be handled with a great deal of discretion Before I can express a view on this I need to understand all the dimensions but as of now the only knowledge that I have is restricted tonewspaper reports. Perhaps we will have an opportunity to dwell on this issue a little later.

Mike Marsh: Yes, certainly this would be one of our prime objectives. I am however told that Indian expatriates have more brain than money and India could do with both.

Thank you, Mr Vaghul. I think you should use your considerable influence to change government policy, especially when it is so visibly stupid. I hope to talk to you on this forum again, and I will now sit back and listen.

What changes would you like to see in the management of India's economy?

Do you have any agenda on how you will do that? How you will attract the best and brightest of Indian talent overseas?

I believe only a fraction of the foreign investment approved by government has come to fruition. Will your council do something about it to raise the percentage levels? Why are so many businessmen who get their projects approved loathe to invest actual funds in India?

On what basis does the government decide the indutries in which to encourage foreign investment?

Jake: Yes Jake I honestly believe that except in the infrastructure areas where the deregulation is yet to take place there is a liberation of Indian business from the permit and control raj. You must come personally to India and talk to the business men before you can believe it. I would also urge you not to judge the Indian business community by the behaviour of a few whicy you might have happened to come across. If you come to India I will introduce you to hundreds of Indian business men who are honest and professional and can hold their own to their counterparts in any part of the world.

Sean: The common economic programme of the new government to which the communists are party to clearly recognises the need for disinvestment in public sector. The opposition of the communists I believe would come only when there is retrenchment of the surplus labour. In the absence of a socialsecurity in the country this is an important issue which cannot be ducked. As of now the Government's disinvestment plans are more oriented towards raising revenue than a genuine privatisation to improve management and productivity. This I believe should be the next stage and I am sure a person of G V Ramakrishna's stature should not be founjd wanting in addressing this issue.

Do you believe that government must have a say in approving foreign investment in India? If people want to come in, they should. Why should there be an controls?

Thank you for your generous invitation.

How can this policy of surplus labour be addressed? Your exit policy did not "take off". So how will this government or any government that succeeds it negotiate this minefield?

Mr. Vaghul Thanks for replying my Q. What do you think of havala payments being made for Indian goods Exported and other goods Imported? Everyone knows the reasons why this happens. Why govt.(govt. today is four letter word) does not free rupee 100% and abolish/reduce tarrifs on customs duties?

Does the FIPC have any policy to utilise no resident India expertise? Who are the other members of this council?

Bharati M: The policy seems to be that excepting in some strategic areas the entire industrial sector should be open to foreign investment. This is the direction in which the government policy seems to be moving.

Jake: I believe I have answered this question earlier. To be precise 23 percent of the approvals have been trqanslated so far into investment. We need to examine whether others are in the pipe line or have abandoned their intentions. This is one of the prime roles of the FIPC and this work is going on.

23%! Is that all?!That is way below the global norm. I am surprised the Indian government has not investigated this phenomenon earlier.

What changes would you like to see in the management of India's economy?

Sofee: Convertibility and sharp reduction in duty structure seem on the face of it simple solutions to an otherwise complex problem. Unfortunately however, a pluralistic and democratic country like India cannot afford to take a gamble on convertibility unless we achieve first macro economic stability. That is why we have identified reduction in fiscal deficit as thye first priority and once this is achieved the rest should follow as a matter of course. Till then we will have to live with and combat the problem to the best extent we can.

I understand that interest rates have just been cut by the federal bank of India. Do you think this decision has come much too tale to bolster growth?

Cynthia: Most of us would like to see lot more changes in the management of the Indian economy than what has happened in the past. I wonder whether I have the time and you the necessary patience to chat about it now. In case we chat or meet again, we could discuss this more comprehensively.

How does the success rate of 23% compare with that of other countries like China? Also, when you say strategic areas, does that include the communications sector? Why isn't AT&T here yet?

Sara Wu: I must tell you that contrary to my own personal expectations Indian industry recorded a 12 percent growth in the context of very high real interest rates. The recent moves which are resulting in the lowering of interest rates to my mind, would only accelerate the process.

Sean: Any policy which assumes that the surplus labour could be just thrown out in the street by whatever name you call it will not succeed. We believe that any sensible restructuring policy would have to have as its integral element re-training and rehabilitation of the affected labour. This is yet another instance of the Western academecia looking at an Indian problem from a Western perspective where so many things are taken for granted. The problem requires not linear but lateral thinking and this is what some of us are attempting to do. You will see the result of our efforts in two to three years time.

Bharati M: One has to be extremely cautious in interpreting figures. When I say that success rate is 23 percent it does not mean that the rest have no intention of investing in India. The projects have their own gestation period and there is inevitably a gap between project approvals and actual investment. The more important figure is what proportion of investors who sought approval have decided not to go ahead with their projects. We are still collecting this data and what is more important is not comparison with other countries but a detailed case by case examination to derive the appropriate lessons. Please be rest assured that we will do this.

Have you met with foreign investors? What has been their response? Do you think they will invest in areas like infrastructure when the risks are higher than any other region in Asia than perhaps Central Asia?

I'd be delighted to Chat with you again. I do hope you will make this a regular feature.

Thank you very much for this very interesting chat. I am pleasantly surprised at the incisiveness and the sincere interest behind each question. I thoroughly enjoyed this last hour and half and I hope I will have similar opportunities of interacting with you all in the near future.

Mr Vaghul, many thanks for your time. It was wonderful having you with us. We do hope to have you on the Chat with us soon.

Mr.Vaghul Thanks again. What do you think will happen to Smal Industris once these giants from USA and other developed nations will lape up the manufacturing and businesses in India, by SSI I mean 100% Indian small companies.

Mr.Vaghul Thanks again. What do you think will happen to Smal Industris once these giants from USA and other developed nations will lape up the manufacturing and businesses in India, by SSI I mean 100% Indian small companies.