The Hindu Business Line : Regulator is not exactly a court of law: Chidambaram

The SEZ Act allows for very generous tax concessions. If infrastructure can be put in place in double quick time and there is a huge tax advantage, as a businessman I would look into a SEZ.

The Finance Minister Mr P. Chidambaram

The Finance Minister, Mr P. Chidambaram, has attended the 39th Annual Meeting of the Asian Development Bank held in Hyderabad. He believes the ADB meeting and the participation of a number of countries, represented by their Finance Ministers, says a lot about what the world thinks of India.

He also says that India is on the right track and through such meetings, the Government is not only explaining its policies to the world, but also to the Indians. He also discusses the role of Securities and Exchange Board of India.

Excerpts from CNBC-TV18's exclusive interview with Mr Chidambaram:

One of the pre-requisites for attracting investment, for creating conducive investment climate for attracting money to infrastructure is the integrity, the credibility of the regulatory process. Do you think that SEBI has conducted itself well and that it has not been tentative in its recent action?

I have not read the order, but I have seen the reports of the order. Last week's order of SEBI was intended to be an interim order which is a tentative order. Anyone familiar with the legal process knows that the interim orders can be varied. Interim orders by definition are interim variable orders. It is only when a final order is passed, one should make a judgment about the quality of SEBI's order.

Secondly, I think there is a fundamental misconception about the nature of a regulator's order. Regulator is not exactly a court of law. It is a regulator exercising judicial functions. So regulators pass interim variable orders from time to time. There is nothing wrong with it as long as they give reasons for that.

You are being legalistic because it maybe an interim order and SEBI in its final order might reverse the action but the collateral damage that has been done is not interim. It is permanent.

I don't agree. By calling me legalistic, you are not adding anything to your argument. One has to be legalistic because this is a legal issue. You can't take a non-legalistic view of a legal matter.

In your Budget speech, you said that you were going to relax the FDI cap on insurance. Is that going to happen anytime soon?

It is on the agenda, we have not taken it back. It will be part of the Comprehensive Insurance Laws Amendment Bill. The bill is in the final stages of preparation. We are awaiting the Insurance Regulatory and Development Authority's final recommendations and if the Bill can be drafted in the next month or two, I expect to introduce it as early as possible.

Can we see FDI relaxation in insurance for particular sectors, for example farm insurance or in particular enclaves like Special Economic Zone (SEZ), which are normally not considered part of the domestic tariff area?

These are ideas. The general question is should FDI insurance be raised from 26 per cent to 49 per cent. We are trying to work for a consensus on that issue and subject to that, it is possible that there could be agreement on sectorally lifting the cap on FDI. But it is too early for me to say what kind of conclusions will emerge from our discussions with our partners and with other political parties in Parliament.

You mentioned that India is going to see the next big wave of skill intensive manufacturing. On what basis can you say that particularly when India remains a difficult place to set up businesses because it takes a long time and the infrastructure is also not up to the mark?

Totally incorrect. When you talk about the average for India, you are averaging a state, where clearances can be obtained within 15 days; and a state where clearances can be obtained after 200 days. Averages are very deceptive.

It is possible in India to set up a business within a month or so. It is possible to get clearances within a month or two. For example, in Andhra Pradesh today, I can say this for a fact that a serious investor can get all his clearances within 30-45 days. These generalisations do not take us very far. If he is a serious investor, if he needs help, we are there in the Government to help. We are willing to hold his hand and make sure that all his clearances are obtained from the state of his choice.

What explains the huge draw for SEZs?

The SEZ Act allows for very generous tax concessions. My suspicion is that they see an arbitrage opportunity in relocating or locating in a SEZ. The infrastructure in SEZ also does not exist today. But the expectation is that when there is a world-class promoter for SEZ, he will put in place the infrastructure in double quick time than a State Government can do in a non-SEZ area. That is an expectation. And I like that expectation to come true. If infrastructure can be put in place in double quick time and there is a huge tax advantage, as a businessman I would look into a SEZ.

As a Finance Minister, do you fear for future because these SEZs could be stacking problems in terms of tax outgo?

That is a judgment, which Parliament has already made. Whatever discussions took place within the Government has taken place and the Bill has been passed by Parliament. That's now law. I cannot look back on that law. That law does give a huge tax advantage to units located in SEZs. So we will live with that for a while. We can always re-visit the subject after some time.

There was some difference of opinion between you and the ADB President because he said that there was no way that you could go away from private sector investing in infrastructure. While you said that the public sector would have the dominant role in providing infrastructure. The ADB does not seem to share that view. It believes that the private sector would have to be called in to provide this.

You didn't read my speech correctly. I said while the space for the private sector can and must be enlarged, the public sector would still have to play a leading role in providing infrastructure. The private sector will certainly be very ready to provide infrastructure in a port or in an industrial zone or in an urban centre.

But who will provide the infrastructure that is required by a poultry farm located in a village or dairy unit located in another village. Rural roads have to be put there. Electricity has to be taken to that village. Drinking water has to be provided in that village.

It is hardly realistic to expect that the private sector will do that to help a dairy unit or a poultry farm. The Government can only do that. The Government puts in that infrastructure which will benefit the people of that area. So in a country where the large mass of people lives in rural areas, when we talk about infrastructure, we are also talking about rural infrastructure. The dominant role there, I have no doubt in my mind, has to be played by the Government.

So there is no difference of opinion about it?

No, I don't see any difference of opinion on it.

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