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The Rediff Business Interview/Dr Shankar Acharya

'You reform as and when an opportunity presents itself '

That is the way I would look at it though some of them have been much more than small steps. Let us take some legislative examples. For instance, following the Budget, this ministry introduced a new Foreign Exchange Management Act and it has been sent to the standing committee, and hopefully it will be passed in the winter session of Parliament. Now that is a big step.

Another big step, when it happens, is the Urban Land Ceiling and Regulation Act, which many feel is an impediment to construction and housing activities as it locks up land and makes the land market dysfunctional. This government has introduced a repeal of that act in the last session of Parliament, and that too has gone to a standing committee and should be law in the next stage.

So I don’t think we have two compartments saying first stage and second stage.

But there are continual reforms?

Yes, and a very positive aspect is that three successive governments, all of different parties and ideologies -- Congress, United Front, and the Bharatiya Janata Party-led coalition -- have shown a lot of continuity with regard to the major dimensions of economic reforms. There will be difference in view, that is but natural, but just look at the continuity.

For example, take the import-export policy. Commerce Minister R K Hegde had announced a new policy in April this year – it was one of the first acts of this government -- which actually continues a tradition of opening up the trade policy in a fairly clear direction as begun earlier.

Then in tax policy, as per the Budget, the fact is this government is continuing the much-applauded direct tax regime brought in by previous finance minister P Chidambaram.

The government is keen on increasing public spending to revive the economy. But where are the resources going to come from, especially with foreign direct investment static?

Well, some of that answer is in the Budget. There is a major increase in the plan allocation for the infrastructure sector such as power, roads, telecom. Now some of the money will have to be raised by the ministries concerned, either by internal accruals or by raising the funds in the market. Let us see how that works out.

The Budget has also taken some special initiatives to try and break the logjam with certain good public sector units such as NTPC (National Thermal Power Corporation) who were having a problem with arrears. These units did not have the cash for various projects simply because their dues have not been cleared. A particular scheme is being worked out to securitise some of the outstandings in a manner which is on the one hand a potential to correct and on the other a constructive approach to something that will take time to resolve.

As far as FDI is concerned, it is not much of a budget issue, but of private flows. There is one very important issue, to which I must draw your attention, is the Resurgent India Bonds issue which has been remarkably successful, and not only in the eyes of government which may be biased. If you talk to bankers -- domestic and international -- the assessment has been that in a situation that is unusually gloomy abroad, the fact that India could raise over four billion dollars at a couple of percentage above US treasury and so on, is quite fantastic. And much of that money is going to be utilised for infrastructure finance, not through the budget but through the banking system.

What about raising funds through the public sector divestment?

Public sector divestment is very much on the track. We expect to get the company roadshows launched for units like Gas Authority of India Limited, Mahanagar Telephone Nigam Limited, Videsh Sanchal Nigam Limited. The prime minister has said that there is nothing to state that these are the only ones which would be divested, but to expect other ones at the right time.

At the same time, you will also see a new approach -- a fast-track one -- to current divestment programmes being currently discussed in government to speed up the process.

The problem is that the primary market is down right now, which means if you divest public sector units, you will not get a good price. Yet, what is needed to raise market sentiments is some good issues, such as PSU divestment. So what do you do?

My minister has declared his view on this. He has stated that the PSUs will be divested at the market price. At the same time, we feel, as you have said, that one of the reasons for the gloomy sentiment in the Indian markets (besides the international outlook) is that few good primary issues have come into the market. Good quality issues, public or private, have not been coming to the primary market.

What we are seeking now is good public issues in both the GDR (global depository receipts) and the national capital markets, done in tandem. At the same time, we want book building of the GDR issue and book building for domestic institutions. This will also lead to a sale from book building to retail. We believe that this approach will on the one hand yield an outcome that is market-driven. Simultaneously, it will put good quality stock into the market so that the capital market should revive.

Any time frame?

Large operations like IOC (Indian Oil Corporation, among India’s largest companies and the only one mentioned in Fortune 500) and VSNL would happen soon.

The major problem is that while the government’s intentions are undeniably noble, implementation remains extremely tardy. In fact, the prime minister has recently declared that his office will henceforth monitor all major projects implementation. Is that a reflection on the MoF?

It is not any reflection on the MoF because implementation does not come under our ministry but under the ministry looking into specific projects. So we actually welcome the support of the Prime Minister’s Office to expedite and monitor the implementation of major projects. This will give certain sectors a fillip and as more projects finish, something will come out to boost the economy.

But, yes, implementation is a problem. It is not a new one, it has been a problem for a long time, and we in the government do not deny that implementation of major projects need to be speeded up.

If implementation is one problem, we have the others where big projects like that of the Tatas to set up an airline and an airport never even got clearance. Does not this send out negative signals to would-be investors?

I would have to agree. It certainly does not send out a positive signal! (laughs). But enough comment has come out of government so I’d rather not say anything.

What about the insurance sector opening up? That has been delayed too?

Again you are right. The decision to open up the insurance sector was taken way back in 1994, midway of the Congress rule. It is also true that neither the Congress regime, nor the United Front, were able to ensure effective forward movement (they made some movement) in getting a major enactment passed.

Now, it is important to recognise that this government has, in its Budget, made some very clear announcements on opening up the insurance sector to Indian companies, and that the control of the insurance sector by one or two companies must go. The issue is on how much equity stake can foreign companies be allowed to have. The general expectation is that whatever it is, it will be a minority stake.

But there are those who want it to be zero, while this ministry’s view was that it should be a significant minority stake. Now that is something on which a genuine political decision has to be made, and until it is made, little more can happen. A lot of groundwork has been done. For instance, the Insurance Regulatory Authority has been existence for quite some time now though it does not yet have statutory backing.

What are the ministry’s immediate targets and goals?

I think the Budget is our agenda. Some people think that once the Budget is presented, our work is done. That is not the way it works. On the contrary, that is just the beginning. We have an expenditure plan and economic initiatives and that is the key agenda for the government for the year.

Now, other things also have come up which require the ministry’s attention. For example, the Narasimhan Committee report is there on financial sector reform which needs implementation. Then there is always the issue of exports, for which we will have to work in a very coordinated way with ministry of commerce and other ministries...

Exports have been badly hit, haven’t they?

Yes, exports have slumped, but I would like to draw your attention to the month of July, the most recent one for which we have data. It shows growth of seven per cent in dollar terms. Taking it from April, export growth is still negative because the first three months (April, May, June) were very bad, and hopefully July is a harbinger of things to come.

The finance minister has been touring the country shoring up the people’s confidence. What is the feedback that you have received about his tours?

My feeling is that it is quite a success. He has had a grassroot assessment of the situation, of what needs to be done, from industry and business. On the other hand, he has pointed out what the government has done and this has gone down well.

So there is reason to believe that the economy will look up soon?

Certainly there is!

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