‘India should make crisis in global trade an opportunity’

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New Delhi | August 24, 2015 8:42 PM

Even as China is trying to boost its exports and perk up its slowing economy by piggybacking on the recently devalued yuan, the Department of Industrial Policy and Promotion...

Even as China is trying to boost its exports and perk up its slowing economy by piggybacking on the recently devalued yuan, the Department of Industrial Policy and Promotion (DIPP) Secretary Amitabh Kant has said India should be watchful of instances of dumping from that country with “huge over-capacities”. Kant — one of the main architects of the Modi government’s ‘Make In India’ (MII) campaign meant to spur India’s manufacturing — said India must protect its core industries from a possible surge of cheap items from China. In an interview to Arun S of FE, Kant said China should invest in the MII initiative instead of resorting to dumping. Kant disagreed with the RBI Governor Raghuram Rajan’s suggestion that MII should largely be for catering to the local demand. Stating that the MII initiative has an export thrust, he said MII is about “making in India for the world”. (Edited excerpts):

Q: What is your assessment of the troubles faced by the Chinese economy and its impact on India?

A: The Chinese economy has huge over capacities particularly in the core sectors. China is seeing a major slowdown. It was an export-led economy but its exports have slowed down. It has to find alternative markets. Their currency is devalued. The Chinese companies will have to find markets such as India to offload their production. However, India must protect its core industries. India must resort to using measures such as safeguard duty, anti-dumping duty and (better) standards. India must be extremely agile on all these fronts. Indian industry will also have to play a major role in doing proper research and informing the government on instances of dumping.

Q: But won’t such measures affect many user industries that may be benefiting from cheaper imports?

A: There are challenges, but we have to find the right balance. It is important to take a long-term perspective. If you allow your main industries, such as steel, to be killed (by not taking any action against dumping), when they (Chinese exporters) increase prices at a later stage, the same downstream industries (in India) that are benefiting now, will suffer severely. So we need to define and protect our core industries, and make them efficient. India cannot grow without the backbone of core industries such as steel and cement.

Q: What is your view on the opinion of some experts that perhaps this is not a conducive time for the MII initiative given the excess capacity in India and in other emerging markets such as China, as well as due to the constraints faced by India Inc in doing business and getting crucial inputs?

A: Your question contradicts the ground reality. Since the MII launch, FDI inflow into India is up by 48% when FDI across the world has fallen by 16%. Indirect tax collection grew 37.6% (April-July) and (the July) Manufacturing Purchasing Managers Index was at a 6-months high. The Index of Industrial Production has shown a positive trend. Monsoon is better than expected. We have seen major investments coming in including from Foxconn, Xiaomi, JCB, IKEA, Boeing, GE, Daimler AG and Ford as a consequence of the MII initiative. India is an oasis of growth amidst a barren economic landscape. We are on the right path. We just need to be optimistic and accelerate our growth.

Q: Raghuram Rajan had warned against choosing the path of export-led growth saying “it won’t be as easy as it was for the Asian economies who took that path before us.” What is your view on his ‘Make For India’ statement, especially now that India’s exports are shrinking due to poor external demand?

A: I have great respect for the governor. He is a fine economist. But nobody manufactures only for the domestic market. Daimler has put up a plant in Chennai with an investment of Rs 5,000 crore. They have looked at domestic market but are using their production to export across the world. Volvo is exporting buses to Europe from India. Hyundai, which came in to cater to the Indian market, is today exporting to 123 countries. India’s share in the global merchandise exports is just 1.7%. India should treat this slowdown in global trade and its poor export performance as a crisis and turn it into an opportunity to enhance its share in the global market. India must produce to global size and scale and connect to global markets. India must realise that if it doesn’t continue to export, it will perish. Export and manufacturing are closely linked. If exports don’t grow, manufacturing won’t grow. We must push for exports so manufacturing grows in the long term, or else it will have severe repercussions. Therefore the policy cannot be ‘Make In India’ or ‘Make For India’. We have to make in India for the world, and the Chinese must invest in our MII initiative.

Q: Despite poor infrastructure being a major constraint in doing business in India, critics say the government has not been quick enough to address the troubles in infrastructure investment and in increasing its capital expenditure. Do you agree with this view?

A: We have liberalised FDI norms in defence, railways, construction, insurance and pension. We have made India one of the world’s most open economies. In infrastructure, the Road Transport and Highways ministry has put up the most ambitious target of awarding projects worth Rs 3.5 lakh crore this fiscal. It is planning to launch 1,231 projects to cover 37,000 km in the next two years. The road length awarded and the highway length tolled were up by 152% and 31% respectively in 2014-15. Around 1,983 km long railway line has been commissioned in 2014-15. This is Indian Railways’ best ever performance. Coal production growth of 8.3% (last fiscal) was the highest in 23 years, while Coal India recorded its highest ever coal production increase of 32 million tonnes. In automobiles, after two successive years of slump, car sales have registered a 5% growth (in 2014-15). We have opened up the defence manufacturing sector. Contracts are being rolled out by the Ministry of Defence (MoD). These are signs of major structural changes in the Indian economy. You will see results coming out in 8-10 months. The results of these decisions do not happen overnight. It takes 18-24 months for economic decisions to get implemented.

Q: The DIPP had argued for 100% foreign investment in the defence sector. But later, the DIPP itself said it did not push for liberalizing the extant composite cap policy (for foreign investment) for the defence sector citing security concerns. Will the defence sector be fully opened up anytime soon, given that the government is banking on the sector to make the MII initiative successful?

A: The defence sector had become the largest importer. This government is determined to push MII through the defence manufacturing sector. It has taken several radical decisions. It has opened up the defence manufacturing sector to 49% FDI but said in cases of modernization and transfer of state of the art technology, the FDI level can go upto 100 %. It has allowed FIIs to invest in defence projects. It has reduced the list of defence items needing industrial licence by 60% so people can come and start manufacturing. We have cleared about 73 defence licenses. There is zero pendency of defence licence applications today. The MoD has allowed foreign companies which have offset obligations to select the Indian partner themselves. The Defence Purchase Policy, the Defence Offset Policy and the ‘Make’ policy (for indigenisation) are all being restructured. These (draft) policies are in public domain and comments are being received from stakeholders. The new policy regime is likely to be announced shortly by the MoD. These are major structural changes, and not done in India in the last four decades. Private companies in the defence sector will be treated on a par with the defence public sector companies for carrying out complex projects. The research done by government organisations such as DRDO will be made accessible to the private sector. These are major steps which the media should acknowledge.

Q: The DIPP is ranking states on ease of doing business, but it is learnt that around 11 states and union territories (UT) have not responded yet to the questionnaire your department sent to them. Many states have concerns on such ‘naming and shaming’ and say legacy issues they face take time to resolve. They fear that the effort will be politicized. Are you confident your approach will result in making India an easier place to do business?

A: Whatever the legacy issues are, the 98 points (for ranking the states) were all accepted by the states. They were to complete their actions against those points by July and give their reports. We are evaluating them against those 98 points systematically and professionally in collaboration with the World Bank. The report will be out by August-end. Whether or not the states joined the exercise, the task was given to every state, and our teams have analysed each of them. We have examined their objections. Several of them have done outstanding work.

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