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FDI is not dirty word with us - The Business Standard

Posted By Krishnakant Udavant (kkant@bom2.vsnl.net.in)
February 5, 1998

Title: FDI is not dirty word with us
Publication: The Business Standard
Date: February 5, 1998

Tipped to take over as the Union finance minister in a BJP or a
BJP-led government, Jaswant Singh spoke to Business Standard on
the implications of the economic content in his party's
manifesto. Excerpts:

Q: What is the basic philosophy that informs the manifesto?

A: I think the principal challenge the government that will
succeed is to restore confidence in India, confidence internally,
confidence internationally, and strike the right balance between
these two. Secondly, so far as the economy is concerned, this
period was really an interregnum and, despite all the good
intentions that he (P Chidambaram) might have had, the very
arrangement of which he was the finance minister would have
thwarted anyone. Therefore, there is a need to reform the reform
process. As far as restoring Indian confidence is concerned,
there is need for Indian industry to feel confident about the
reform process. The second aspect is, a very large segment of
India do not feel that any benefit has accrued to them after
seven or eight years now of an economic reform programme. And I
don't speak simply of the American statistical figure, the 300
million Indians who we say are below the poverty fine. I speak of
the vast hinterland of India, 70 to 80 per cent of India, which
we feel completely excluded from the economic reform programme.
Our whole endevour has been to strike the right balance between
the Indian and the international, and therefore we have talked of
calibrated globalisation. I do believe, for example, if you
reduce tariffs, you must have in position before that, very
adequate and highly efficient anti-dumping laws and mechanisms.
Otherwise you choke the indigenous for the benefit of the
international. Obviously no country can afford to do that.

The other two major areas are administrative, I believe that
India's GDP is not correctly reflected, and that it is kept back
and prevented from going on account of administration
inefficiency and bureaucratic ossification. Decisions taken
simply do not get implemented. Therefore we have said that fast
track power projects, we are committed to see that at least work
starts in 1998.

Similarly, we have emphasised physical and social infrastructure,
we have emphasised employment, we have emphasised culture, small
scale and an entire segment of the GDP, which we feel is
completely neglected. The small artisan, the Bhagidar, which is
really almost 40% of the country's GDP. No one seems to pay any
attention to them. We believe the entire tax regime must be so
oriented as to encourage the natural tendency of Indians savings.

Q: But talking of administrative reforms. There is nothing
radical in the document. It's just strengthening the steel frame?

A: The manifesto has limitations. We cannot be all inclusive. I
am to you now that this is one of the intents of the BJP.

Q: Internationally, the biggest thing that happened in the last
seven months is the collapse of Asian economies. What lessons has
the BJP learnt from that?

A: I think the first lesson is profligate borrowing. The second
relates to reform of fiscal systems, principally Indian banks. I
think the economic reform programme would be badly crippled if
simultaneously we have a highly efficient banking system. We
don't have it.

Q: Would you say that is necessary to go back to Privatisation of
banking ?

A: I'm absolutely sure in my mind that the banking system as it
exists today does not subserve the country's economic interests
adequately. Therefore this slow movement towards banking
privatisation, we would encourage it but we would ensure in the
process of privatising that we adopt exactly the same procedure
as for insurance, which is break the monopoly of state. Let the
entrepreneur in, with very strict criteria, a very strict
regulatory mechanism. And only then permit the large foreign
banks to play freely in India, or the large foreign insurance

Q: Are you saying you would delicense the big banks soon after
you come to power?

A: I am not saying that I will do it soon after. All I'm saying
is that we need to urgently address ourselves to banking reforms.

Q: The manifesto talks about economic nationalism. East Asia's
economies have been battered, and Mexico's was ten years ago.
Nobody there is talking of protection for domestic industry. But,
you are?

A: We are not talking of protectionism as such.

Q: Seven to ten-year Protection for domestic industry?

A: We are talking of a period of adjustment. The world protection
conveys a wrong meaning. I believe in the philosophy that we can
grow only on the basis of our own strength. If we destroy what is
ours, on the faith that somebody from outside will conic in and
build India, that is an illusion. Seven to ten-year period is
not a Bible. I am attempting to convey a sense of reassurance to
Indian industry that, whether in the case of anti-dumping laws or
in the case of level playing field, how can I provide a level
playing field, when the two integrals of capital and technology
are already slanted against Indian industry. I must provide them
a breathing space. This is not protectionism. It's a breathing

Q: Why should the Indian consumer not get the latest, cheapest
the most efficient in the world?

A: I totally agree why should the Indian consumer not get the
best in the world. All I am saying is that the Indian consumer
is one segment, a very important segment of the totality that is
India. There is a large segment of this very totality, at least
a third, there is not even a consumer. I must therefore strike
the right balance. I must take care of the consumer. I must also
take care of that which is not even part of the market. Because
governance is principally the challenge to reconcile conflicts
that are both valid. These are both valid concerns. It is
precisely the challenge of the government to reconcile these

Q: But how would giving Indian industry 7 to 10 years to adjust,
help the third of population that are not in the economy?

A: The two are not related. The third of the population, we have
suggested, by redefining the role of the state. We feel that in
the seven or eight year period, the role of the state seems to
have been forgotten and the state withdrew too abruptly and too
much, where it was necessary for the state not to withdraw, and
continued to be too much present where it should have actually
withdrawn. Too little state investment. For example, the state
withdrew from cement purchase. As a consequence, the cement
industry is now languishing. Third consequence: South Korea,
which is now suffering differently begins to dump cement in
India, further deepening the cement crisis. 71e state is the
largest buyer of steel. The state suddenly withdrew from buying
steel. 'Re state must gradually withdraw. So we emphasise the
role of the state in that regard.

Q: The coffers are empty. How would you refurbish them?

A: That is a very valid point, and ifs an area of major concern.
I will first tackle governmental expenditure, assuming that we
have the responsibility. I will move purposefully towards a
scheme for retiring the large public debt which is costing us Rs
70,000 crore annually as haemorrhage, of interest alone. That is
why I am addressing my task in a ten-year time frame. These are
the guideposts for the government when we are going into office.

Q: You say you would like to direct FDI to priority areas.
That's what has been happening. So what are you saying that it
is different?

A: I am emphasising that foreign direct investment is not a dirty
word with us.

Q: It is for some of your allies, and for some in your party?

A: No. The manifesto is a declaration of intent FDI is not a
dirty word. Every nation has a national obligation to prioritise,
to lay down national priorities, in any area of governance. We
lay down national priorities. FDI is welcome in infrastructure or
exports, this would be far preferable than if it were in consumer
non-durables, for example. It would direct it would canalise, it
would encourage FDI in these areas.

Q: How would you do that? Either you debar investment in some
areas, where the foreign investor would see profit, or you leave
it to market forces. How would you strike a mean?

A: That is precisely the word. You have to strike a mean. I
cannot simultaneously be saying that I wish to debureaucratise
and yet continue to create more and more bureaucracy, of
regulation. But effective, efficient, functional regulatory
mechanisms. Thirdly, the whole question of non-physical tariffs.
I think governments can regulate flow of money in the directions
of national priority, Wait and watch.

Q: Do you think China has been hurt at all by investment in low-
tech areas?

A: China you must recognise, the state system of China is very
different to ours. A major proportion of Chinese investment is
the Chinese diaspora's investment, Almost 80 per cent of it is
expatriate Chinese, Hong Kong, Taiwan, Macau, Singapore, that
money is flowing back. Thirdly, the large part of money has come
into what we call the small scale. Small scale is really what has
flowered in China, and this small scale is almost entirely
oriented towards exports. I think there are a great many things
to be learnt from the Chinese experiment. Those are lessons that
have to be Indianised.

Q: Does your manifesto categorically rule out 100 % subsidiaries
for foreign investment?

A: No, it doesn't We would prefer joint ventures. We have said
100 per cent in exports, high-tech areas, etc. We have also
simultaneously said whatever we do when we come to office is not
retroactive. There is no secret agenda. We have to continue to
emphasise that there is a role for the state to play, that there
is such a thing as Indian interest.

Q: In the competition for international capital, would you say
that your policy would make India a more attractive destination
for investment?

A: Yes, I will. This destination has 950 million people, a vast
and growing consumer market. No investor can possibly ignore
India, provided you give that investor confidence in governance,
which we believe we will be able to provide. Provided the
investor is sure of an open, reliable and corruption-free regime.
We are committed to providing that. It's only a matter of couple
of months from the time the BJP moves into office that all the
right signals of confidence, both internal and international,
begin to flow.

Q: The foreign investor who wants to invest in potato chips will
have nothing to fear?

A: Well, for those that have already invested in potato chips,
there is nothing to fear. But another foreign investor comes and
says, I also wish to apply in potato chips. We would try and
persuade him, perhaps it's much better to produce machinery for
potato chips.

Q: That happened to the idea to lock in FIIs' investments?

A: That was denied by us at the very beginning. here is no
question of lock-in period. Secondary markets are really like
second hand markets. The government's greater concern is the
primary market. There I am committed to providing more open,
more effective, more efficient regulatory mechanisms, which take
care of a great many of these problems.

If the foreign institutional investors wish to play in the
secondary market of India, they are free to play. There is no
question of any lock-in period or restrictions of any kind.

Q: The committee did consider it at some point.

A: No we didn't even consider it.

Q: You speak about a MITI-like organisation when in Asia we see
that that leads to crony capitalism. Aren't you out of step here?

A: We had crony capitalism, when we had what pretended to have a
socialist regime, which was a licence quota permit raj, and
there, licence became an extension of political patronage. I
believe that relationship is unnatural. In trade, industry and
commerce have a great deal to contribute as ideas at the level of
micro-economics. They are the ones who are actually operating,
whether it is refinery or cement plant or steel, automobile
manufacture whatever. They must be able to sit with the
government and say what you are doing is pinching us. It will
create much greater and much more effective cooperation between
trade, industry, commerce and government

Q: The Abid Hussain committee and a significant opinion has been
that reservations should be done away with. However your
manifesto seems to be going in the other direction. You are
willing to look at the raising ofthe limit to Rs 3 crore. You've
indicated that you would want to pare down the Abid Hussain
committee report. Are you flying in the face of rational economic

A: No. I am in fact moving in the direction of rational economic
governance. I just now gave the example of Chinese economic
revolution being largely fuelled by what you called the small
scale. Of course, there must be economies of scale, but where
you need high employment, where labour is an asset, where there
are millions of entrepreneurs, where small scale is riddled with
all kinds of restrictive factors, where small scale, because of
faulty taxation laws, begin to be spawned as children by larger
industry, these are some of the wrongs that must be taken care

But if you were to throttle the small scale in India, you would
be throttling a vast segment of Indian enterprise that is
contributing so much to the totality of Indian economic

Q: You say you want to step up growth rate to 8 to 9 percent. How
do you propose to do that?

A: I believe the present figures are not very accurate. I believe
that simply easing out administrative methods and systems would
contribute much faster to decision making. This in itself would
contribute to GDP growth.

Thirdly, the largest segment of Indian industries but which is
hardly part of the GDP is housing. We believe that emphasis on
housing is not only a social infrastructure measure, it creates a
synergy of related economic activity, consumption of cement,
stone, quarrying and provides high labour. This, combined with
emphasis on capital expenditure on agriculture and a simultaneous
improvement of banking and services, I have no doubt that the
country can achieve this.

Q: If the BJP does form a government and if you are again the
Finance Minister, would you approach your job with the same
mindset as you did the last time?

A: Yes. My mindset is the same, except that I am a little wiser
now through the experience of others.

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