The government at the Centre has been striving hard to devise strategies to improve the investment climate in the country. Speaking to The Dollar Business, Arjun Ram Meghwal, Union Minister of State for Finance and Corporate Affairs, highlights the measures taken by the government to boost FDI inflow into the country apart from discussing policies initiated to revive exports growth.

Manishika Miglani | March 2017 Issue | The Dollar Business

TDB: What steps is the government taking to attract more foreign direct investments (FDI) into the country?

Arjun Ram Meghwal (ARM): The government has already abolished the Foreign Investment Promotion Board (FIPB), which was the gateway for foreign direct investments (FDI) that came through the approval route. The government felt the need to scrap the Board because 90% of the FDI had started coming in via the automatic route, which does not require prior approval from FIPB and is subject to only sectoral laws. Also, it’s the government’s priority to simplify the procedures involved in the rest 10% FDI cases that are coming through the approval route. This announcement, which is in the country’s interest, is made by the Finance Minister recently to boost FDI inflows. In fact, we will continue to implement new strategies in the months to come to ease the inflow of FDI.

TDB: With the abolition of FIPB, what kind of increase can we expect in FDI inflow? Which sectors do you expect to benefit the most from the decision?

ARM: I cannot forecast whether it will grow. However, it is evident that India has become a major destination for FDI from across the globe – especially after the Modi-led government came to power. And I believe that this trend will continue in the foreseeable future.

With that said, we want FDI inflow to increase in the field of R&D because it will help generate employment in a variety of sectors. For instance, processed food exporters from India still have to send many export-oriented products for testing abroad. And this is because we do not have adequate laboratory facilities. So, an increased FDI in this sector will help exporters reduce their costs. And, in the process, we will be able to generate some well-paid jobs.

Another sector where we would like to attract FDI is infrastructure. This holds a lot of significance in the backdrop of the development of advanced ports that form the basis of our exports. Also, we are hoping to attract more FDI in R&D for the health sector so that we can develop medicines that are not currently available in the country.

TDB: The government plans to launch the Trade Infrastructure for Export Scheme (TIES) this year. How do you think TIES will help India revive the declining exports?

ARM: The TIES scheme will improve the existing infrastructural framework for the industrial and services sectors development, which has been a focus area for our government. Also, the team that is implementing this scheme will be responsible for fixing the missing links that come in the way of our development and hamper the overall exports growth.

Over the last couple of years, we have noticed that our exports have declined. However, this downfall can be attributed to various factors related to international markets – for instance, the drop in oil prices and the elections in US. These events hit us hard because US and Europe are still our largest export markets. Our exporters should be looking for newer markets beyond our traditional grounds. For example, we can look at exporting to Africa and Latin America, apart from focusing on our “Look East” policy to compete with China.

We can also increase our exports volume by choosing the most suitable routes. For example, Chennai is a better choice to export to Singapore because they are geographically closer to each other. Also, it will be advantageous to export from either Kochi or Gujarat to South African markets. So, the team under the TIES will focus on such aspects and explore new markets for exports.

TDB: In terms of manufacturing, are we really in a position to compete with China?

ARM: China might be the top manufacturer; but, it doesn’t have a focus on holistic growth like India. Besides, it is not a democratic country, which puts us in an advantage in every respect. For example, for ushering in industrial and business development, we have a Land Acquisition Act in India, which is missing in China. We should always compare the two nations based on the all-round development to highlight growth.

Also, in the recent years, our government has launched many initiatives like ‘Make in India’, ‘Skill India’, ‘Digital India’ and ‘Stand-Up India’ to promote manufacturing in the country. This makes us feel confident that the 21st century will belong to Asia – with India taking the lead. And considering the immense growth that we have witnessed in the continent, particularly in India, even the corridors of power in the West consider India as an emerging leader.

TDB: Demonetisation has been one of the most debated policies ever implemented. How do you think it will impact our economy and GDP growth?

ARM: Dr. Manmohan Singh had highlighted in the Rajya Sabha that India’s GDP growth will decrease by 2% post-demonetisation. He also claimed that banning of Rs.500 and Rs.1,000 currency notes is “monumental mismanagement”. But, we would just like to ask, which “monumental mismanagement” is he referring to?

As per the data released by the World Bank, India has a substantial shadow economy. At one point in time, the apex trade body estimated the shadow economy to be to between 22-26% of the GDP, which is a large number. Our internal estimates suggest that it stands at 23.2%. Shadow economy refers to black market transactions and undeclared work. So, when this unaccounted income comes out in the open and becomes a part of our economy, our GDP will increase. Also, our thrust on digital transactions will aid the formal economy.

There are only three factors that contribute to a country’s growth. The first is domestic consumption, the second is investments, both domestic and foreign; and finally, exports of goods and services. And demonetisation, which will eradicate black money, will help India increase all these three factors and add substantially to our GDP.

"China doesn’t have a focus on holistic growth like India"

TDB: What’s your opinion of SEZs as a means of enhancing India’s business environment?

ARM: Special economic zones (SEZs) were introduced as an engine for economic growth. It was formulated as a “foreign territory”, and was meant to attract FDI into the country and boost exports. The policies for SEZ were formulated to ensure smooth business operations, with the minimum possible regulations. Today, we have several special economic zones across various sectors. And talking about their future, we want SEZs to fall in line with the existing framework of our industrial development and maintain a balance with the present pollution and labour laws.

TDB: Indian Industries Association (IIA), the apex representative body of MSMEs, has been demanding lower interest rates for the sector, an area which hasn’t been discussed in the Budget 2017. When does the government plan to address the issue?

ARM: The government will definitely give a lot of importance to the Ministry of Micro, Small and Medium Enterprises (MSMEs), which is why we have asked the sector to move at a faster pace towards digital transactions. This change is required to minimise the number of companies falling under the category of being non-compliant, in terms of tax payments. Since many people are indirectly involved with MSMEs, it is expected that the tax net will further expand. This change, in terms of better compliance, will help us lower the interest rates for MSMEs, at par with those of the agriculture sector.

We have started the process of digitalisation. For example, we used to give 20% cash credit to MSMEs earning a specific amount of turnover. But now we have increased this limit to 23%, on the condition that MSMEs transact digitally. We have also lowered tax rates for the sector. It is evident that we are serious about giving this sector a level-playing field. These policies will increase our merchandise exports and generate employment at the same time.