In a conversation with Sushila Ravindranath the Loyal Textile Group CMD explains how the government?s preferential treatment to a few big business houses raised interest rates and hurt smaller businesses

Manikam Ramaswami, a gold medalist from IIT Chennai, is the chairman & managing director of the Loyal Textile Group, one of the country?s leading textile exporters. He believes in calling a spade a spade and never hesitates to put forth his point of view in forums like CII, SIMA (Southern Indian Mills Association) and Texprocil where he plays an active role. Ramaswami has his own take on the causes for the spiraling inflation in the country and MGNREGA . He squarely blames the corporate sector and the big multinationals who have chosen to invest here for the inflation. He is convinced that a lot of good has come out of MGNREGA. When I invite him for lunch, he suggests we go to The Great Kabab Factory in the Radisson Hotel. ?We don?t have to bother ordering. They keep bringing the kebabs.?

We ask for fresh lime and wait to be served the starters and kebab. Although both of us are vegetarians, there is a wide variety to choose form. They serve interesting tikkas made with yam, zuchinni stuffed with cashews and mushrooms and the traditional kababs. ?Why are you so upset with the large corporates,? I ask him. ?If you look back, until 2008, government policies did not exactly help inclusive growth. In fact, they did a lot of harm by actively encouraging flow of short term funds. This was unnecessary as there was a current account surplus. Money flowed into the stock market from zero tax countries. Companies were allowed foreign currency borrowings even for rupee designated expenses. RBI, realising the impact on money supply, placed restrictions on external commercial borrowings (ECBs). But the government allowed a select few big business houses to bring in billions of dollars as ECBs. Do you know that the ECB inflow increased after the RBI tried to curb it? The increase in money supply resulted in RBI increasing reserves and that led to the increase in interest rates.? What does this mean? The small and retail borrower ended up paying additional interest to subsidise the interest savings of large, privileged companies.

?The political class understood that the poor were suffering. They increased support prices for most crops and introduced MGNREGA, which is the best thing that has ever happened in this country,? Ramaswami says. Why does he continue to blame the large corporates for inflation, which is not coming down as hoped? ?A handful of corporates have the advantage of low cost resources. Our national resources like spectrum, ore coal, limestone, granite, and even river sand have been gifted away for a minimum price or almost free to the corporate sector. They also get legal protection like non tariff barriers, BIS certifications, higher than necessary export incentives and anti-dumping duties. All these add to the cost of services and products and to inflation. Cement sells here at 2-3 times more than the international price. Steel prices are 15-20% higher. The BIS makes the import of cement very difficult. The bureau has to approve of cement factories from where you can import from. They very rarely give approvals. Transporting goods by railways costs one-third of road transport. Only wholesalers are allowed to book railway containers. They book profits at the cost of retailers.?

He adds, ?India is losing between R2-3 lakh crore due to giving away resources without auction each year, adding to our fiscal deficit. At the same time, the pricing protection given to large groups is giving them an additional R1 lakh crore in revenue at a conservative estimate. These two will keep inflation high and stubborn. Removing these two will boost the GDP growth rate as raw material prices will drop and value added products can be produced competitively.?

He is quite critical of all the states tripping over each other in inviting investments from MNCs and big business houses. ?In Tamil Nadu, two things need to be corrected: One, the unequal distribution of power; Large businesses, including IT companies, are getting uninterrupted power of 1,800 MW even during peak hours. TNEB suffers more losses in supplying power during peak hours to these companies than to low income houses. These companies need to be treated on par with the suffering SMEs in south and west Tamil Nadu. Second, the incentives of input VAT refund is going out of control. Some electronic hardware companies have taken back several times their investment plus salaries and wages paid within 3 years and would continue to do so for several more years. Around 20 companies are said to be taking back over R10,000 crore each year. General VAT in Tamil Nadu is higher due to these artificially high incentives and would have been much higher if not for liquor income. Given Tamil Nadu?s many positive features, all that the state needs to do is to improve its power situation. Then it can, without any incentives, attract quality higher technology investments. All these high incentives and giving away so much each year is putting pressure on Tamil Nadu?s finances to get new power plants and other electricity-related infrastructure in place, not the freebies as people think.

As we are polishing off kebab, I ask him how the textile industry in Tamil Nadu, which has a major share of the spinning mills in the country, is doing. The acute power shortage in the state has taken its toll. ?We have managed the last few months with wind power. My company will break even this quarter. Some of the earlier government policies had made life difficult for us. The retrospective export incentives given to cotton made it cheap internationally, and very expensive domestically. Then the banning of cotton exports and yarn exports and the lifting of the ban thereafter resulted in accumulated cotton yarn of 500 million kg. The price just collapsed during that period. We have to make up for the loss of that period.?

The spinning industry will go through a change slowly in the South. ?Gujarat and Maharashtra are offering attractive schemes to spinning mills. We can deal with that. Tamil Nadu does not have to court investments through incentives any more.? As he concedes, there is a labour shortage in the state. He himself has had to hire workers from Bihar, Orissa and Nepal. Unlike most employers and the farming community, he does not hold MGNREGA responsible for the poor availability of workers. As we move on to ice cream, he tells me why he says that. ?Until MGNREGA was introduced, the wages for low-end jobs both in agriculture and in the unorganised sector ranged from R60-100 per day. Contract labour in the organised sector was slightly better off. It was invariably below what was specified in the Minimum Wages Act. With MGNREGA, wages have shot up, hovering around R200 a day. Today, if I am paying R200, my competitor is willing to pay R300. It is not the availability of labour that people are complaining about, it is the non-availability of cheap labour.?

sushila.ravindranath@expressindia.com