‘Real reform is pushing ahead with infrastructure investment’

Even as India’s GDP growth is falling, Ms Naina Lal Kidwai thinks the perception Indians have of themselves is lower than how the world perceives them.

She also has a different take on the “policy paralysis” afflicting the country. For her, the big ticket reform is not about Foreign Direct Investment (FDI) limits in retail or insurance. Real reform is to march forward on infrastructure investment, and in particular put the power sector back on track, she says.

Ms Kidwai should know, for she dons national and international roles – locally as the Country Head of HSBC India, the Senior Vice-President of the industry body FICCI and a Member of the Government-Industry Task Force; and globally as the Executive Director on the Board of Hongkong and Shanghai Banking Corporation Ltd, Non-executive Director on the Board of Nestle SA and Member of the World Economic Forum's Global Agenda Council on Climate Change.

She spoke to Business Line last week in Brussels, where she was leading an Indian business delegation to the European Commission headquarters which met Mr Antonio Tajani, the Vice-President of the European Commission.

Expressing surprise over the 20 per cent growth in India-European Union trade in 2011 despite the Euro Zone crisis and the slowdown in India’s growth, she said this suggests that the industry is finding ways to better engage even during what could be perceived as a downturn. Ms Kidwai also offered a solution for the “black money” issue affecting India.

Excerpts from the interview:

What is the perception of European business about India?

We are disappointed to see our GDP growth falling down to 6-6.5 per cent. We would rather see it at 8-9 per cent levels.

The rest of the world, however, sees 6.5 per cent as a respectable growth rate. Though they think India is not an easy market to operate in, they are prepared to give it a serious look.

Our perception of ourselves is lower than how the world perceives us. But we need to ensure that the boardrooms of large companies do not get infected by this negative perception.

We need to lift the perception, reassure them that change is happening, and tell them that (the recent) Ikea type of proposals (of an investment of Rs 10,500 crore) are still forthcoming.

But what are the big ticket reforms that would give foreign investors confidence on Indian economy?

The big ticket reform does not necessarily mean allowing FDI in multi-brand retail or raising the FDI cap in insurance, as they may be mere “pro-reform” signals. We have lived without FDI in multi-brand retail and a higher FDI cap pension and we were still growing at nine per cent.

Real reform is to march forward on infrastructure investment, and in particular put the power sector back on track.

Many new projects took off, but are now stalled. They have to be completed fast. The Prime Minister’s Office is putting more focus on the power sector.

We need labour reforms, further growth in services sector, more investment in roads, ports and airports too, and we also want to see the expeditious completion of the Delhi-Mumbai Industrial Corridor project because it will spur the kind of growth we actually require.

Is the banking sector ready to fund these long-term projects?

The power projects are not stalled because of lack of bank finance, but due to the issue of coal supply.

No infrastructure project today is stalled because of the banking sector. Today there is no urgency for our banking sector to reform or grow in way that needs financing.

Yes, 5-10 years later, we would need a larger banking sector and strong long-term debt markets.

That is a problem which could play out if we realise our dream of $1 trillion investment in infrastructure. Then we would also need pension reforms, so that our pension funds can invest in long-term corporate debt, and bigger banks that can take some of this on to their books, and most importantly we need a strong sector so that the loans that are given don’t turn bad. There has to be the confidence and the risk profile providing a degree of comfort for this.

How is the rupee volatility impacting different sectors?

The weakening rupee helps the services (exports) sector. But it is not so good for imports, especially given our huge oil bill. Things like “millennium bonds” would bring dollars into the country and could temporarily contain the rupee’s downward slide.

The FICCI has also proposed that India should look at the Switzerland-Germany tax (evasion) treaty by which Switzerland has given (over) $5 billion to Germany as tax on the monies of the latter’s citizens but without giving the names of the perpetrators (of tax evasion).

A similar pact can ensure that the money of those (Indian) individuals (in Switzerland) comes back with penal interest. If we can also catch those perpetrators, nothing like it.

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