The Finance Minister P Chidambaram, who has been on a week-long tour of Canada and US, claimed that investors are convinced about the Indian government's intention and commitment towards reforms, reports CNBC TV18's Gopika Gopakumar.
“I think everyone is convinced about the government's intention and commitment. And as decision are taken and they see that one after another crucial decisions are taken. I think they are more and more convinced that the government is determined to keep the reform process going forward,” he said while attending the G-20 meet in Washington.
Chidambaram has conducted many roadshows since the beginning of calendar year to regain foreign investor’s confidence in Indian economy after the country’s growth tumbled to lowest in a decade.
Reconfirming UPA government’s focus on reforms he said that reform is not about opening up or fixing problems, but making it easier to conduct business.
“Making it easier for capital to flow into sectors that are demanding capital and reform is improving processes, making them more efficient. Reform is bringing about a great degree of clarity and objectivity say in tax laws and decision making,” he said.
After opening up aviation and retail sector for foreign direct investment in last September, the government is trying to push several other reforms. Insurance and Pension Bill, Land Bill and Food Security Bill are some of the crucial bill which government will be discussing in the second part of Budget session scheduled to start next week. Chidambaram said that passing all these bills was crucial part of the reform agenda.
Among other reforms, he said setting up a coal and road sector regulator was of utmost importance. Several industries like power, steel, cement have been under pressure due to limited supply of coal in the country. Several coal mine owners have not been able to start mining due to bureaucratic, legal and environmental hurdles. Getting land for any industrial purpose has also become troublesome for business houses.
At the G20 meet, Chidambaram reiterated his confidence of achieving fiscal deficit target of 4.8% set for FY14. He said that government has already demonstrated its capacity to contain fiscal deficit. Fiscal deficit of 201-13 had been contained at 5.2 percent of GDP lower than 5.3 percent targeted earlier.
Chidambaram further added that G20 meet was preoccupied with European financial issues. He hopes to soon close a free-trade pact with US.
The finance minister confirmed lobbying to credit rating firms for an upgrade in India’s ratings. He said it was feasible to boost country’s growth to 8 percent by 2015-16 fiscal.
Below is the verbatim transcript of Finance Minister's interview with CNBC-TV18's Gopika Gopakumar
Q: You have been going around trying to sell the India growth story. What are your key takeaways from this tour?
A: The takeaway is that we must constantly communicate with investors. It cannot be a one off communication. There must be enough people in government constantly talking to investors because the other governments are talking to them and it is a competitive world.
Q: Do you think you have been able to convince global investors about the government’s intent on getting the growth story back?
A: Everyone is convinced about the government’s intention and commitment. As decisions are taken and as they see that one after another crucial decisions are taken, I think they are more and more convinced that the government is determined to keep the reform process going forward.
Q: But you think you have been able to convince them or get some investments in the pipeline?
A: You should ask them that question and should wait to see how much Foreign Direct Investment (FDI) and how much Foreign Institutional Investor (FII) flows into the country.
Q: In one of your meetings with global investors you mentioned about this big economic agenda that you want to fulfill. What is this big economic agenda that you have in mind and how far will you be able to open up these sectors in the next 12 months?
A: ‘Open up’ is a wrong phrase; reform is not about opening up. Reform is fixing problems, making it easier to do business, making it easier for capital to flow into sectors that are demanding capital. Reform is also improving processes, making them more efficient. Moreover, reform is bringing about a great degree of clarity and objectivity say in tax laws and decision making.
So in that light, the cabinet committee on investment is a major reform. If we decide finally to set up a regulator for the coal sector and a regulator for the road sector, that would be major reform. If we are able to take decisions on the Rangarajan Committee report on the kind of contractual relationship between the government and the concessionaire; should we substitute the production sharing contract with another model, should we move from the administered pricing model to a more market related pricing model that would be a major reform. All these are reforms. Opening up sectors that are close to foreign investment is one part of reform but that is not all reform.
Q: You said that you would announce a series of reforms when the Finance Bill comes for passage. What is on the cards?
A: Many of these do not require legislative action; many of these can be done by executive action. The Finance Bill is already been presented to parliament. We cannot add to the Finance Bill now, we can only make some small official amendments based on the feedback. Any of these things that require legislative action, we will have to introduce bills say in the next session but many of them can be done by executive action.
Q: So what are the reforms that therefore we could expect while the Finance Bill is getting passed?
A: The Finance Bill itself proposes a number of changes in the tax laws, so that is reform. Along with the finance bill if we can get the insurance and pension bills passed that would be reform. If the Land Acquisition Bill is passed that would be reform. If the Food Security Bill is passed that would be a reform. There is enough on the plate to qualify for major reforms.
Q: Considering that you are working on a short deadline before the next elections, do you think it would make sense to focus on achieving the fiscal deficit target rather than going about any big ticket reforms?
A: Fiscal deficit targets cannot be fixed every month; it can only be done once a year. We achieved one target on March 31, 2013. The next target date is 31 March, 2014. So, fixing the fiscal deficit cannot be a daily or weekly affair. It can only be once a year.
I think we will achieve the target that we have set for ourselves for March 31, 2014. So, that is only one part of the reform there are many other things and I have just listed a few of them.
Q: You said that divestment will start early this year, but there seems to be no action happening on that front - even Hindustan Zinc and Bharat Aluminium Company Ltd (BALCO) seems to have got stuck?
A: This month is only 19 days old. Therefore, they will bring papers to the cabinet since each case has to be brought to the cabinet committee. At present I am away, so I am sure they will bring the papers to the cabinet very soon.
Q: But has the law ministry gotten back to you?
A: Hindustan Zinc and BALCO are not top of the list. They are residual stake of government in companies. When we talk about divestment, we will be talking about divesting from public sector companies, also to meet the requirement of Securities and Exchange Board of India (SEBI) for listing purposes, there has to be a float of 10 percent.
These are residual stakes in non-government companies, they are being handled separately. The law ministry has come back and some clarifications were sought. I have not kept in touch as I do not deal with those two cases. It’s dealt at the official level.
Q: What are the companies apart from those approved by the cabinet are you looking to divest this year?
A: There are any number of public sector companies, which have failed to fulfill the Sebi requirement. In all those companies one has to divest up to 10 percent if the company must remain a listed company. There are any number of companies.
Q: You mentioned in your speech at the Peterson Institute (Washington) that you are in advance stages of fixing the fuel supply linkages for power plants. How exactly are you looking to fix this problem?
A: There is a proposal for price pooling in coal - domestic and imported coal, so that fuel supply to power plant is assured. That will come up before the cabinet committee very early.
Then there is a question about oil and gas on the Rangarajan Committee. That also should come to the cabinet in about a month or so. Since the two major fuels for the power sector are coal and gas; once we take decisions in respect of coal linkage and gas linkage that should substantially improve the assured fuel for power plants.
Q: How easy is it for you to go ahead with pooling of gas prices because I am told to understand that there could be some difficulties on that front?
A: I have not yet seen a paper on pooling of gas prices, but I am sure they are working on it.
Q: There have been concerns on the tax residency certificates. How are you looking to clarify on this issue? Will you look at redrafting or making any changes to the provision?
A: There is no need for any clarification. It was a media inspired storm in a tea cup. It was there last year in the notes to clauses and this year they brought the very same sentence. Word for word into the bill and I do not know why the media went over the top of that.
Anyway, we have clarified it. A tax residency certificate is exactly that. It is a certificate of residence of the tax payer, nothing more or less. What is there to clarify there? It is self evident. A tax residency certificate is a certificate of residence of the tax payer.
Q: International Monetary Fund (IMF) in its spring meeting has been cautioning against the surge in capital flows into emerging countries including India. Do you think India should take this warning seriously and if not do you think there is space for hike in ECB caps and FII debt in debt going forward?
A: India can absorb much greater flows. I do not know what the context of the IMF’s cautioning was. However, I think we can absorb greater inflows both FDI and FII. Now that we have got two baskets, USD 25 billion for government bonds and USD 51 billion basket for corporate bonds, I have also said that there are trigger points.
Once the basket is full upto a trigger point, the size of the basket will be enlarged. We will raise the limit. So, that we can attract more flows. India needs more foreign inflows. I am not sure the context in which the IMF made that cautionary statement, but I do not think it applies to India at this moment.
Q: You said in January that Vodafone tax dispute will be resolved very soon but three months down the line, it has still not been resolved yet. The law ministry has said no to conciliation so in this context or the scenario, what is their way forward?
A: Our paper to the cabinet has gone to the law ministry for comments. The law ministry has not yet given its comments. So, I do not know how you come to the conclusion that the law ministry has said anything to the contrary.
Once we receive the comments of the law ministry, we will take it to the cabinet. I am told that the law ministry will give its comments maybe has in the last week or maybe will give in the next week. Once the comments come, we will go straight to the cabinet for the decision.
Q: The falling global commodity prices have dominated the headlines but your government has not hiked diesel prices on April 15, do you think a hike is around the corner before the end of this month?
A: Oil marketing companies (OMCs) have been given the freedom to make small corrections in diesel prices from time-to-time. They made such corrections in January, February and March. Now, whether they want to do a correction in April, I cannot say but if they want to do, there are still eleven days of April.
Q: Are you confident that the government will be able to keep raising diesel prices?
A: Correction, OMCs not government. Yes, they will. That is the freedom they wanted. That is the freedom they have been given. So, having asked and obtained the freedom, why should I presume to the contrary. They will make the corrections as and when necessary until the price correction is complete.
Q: Do you think OMCs have that freedom to hike diesel prices considering that state elections are around the corner?
A: I think so. I think they will exercise their freedom. Having asked and obtained it, they will exercise their freedom.
Q: There seems to have been a lot of flip-flop on the raising prices for KG basin gas. What is the government’s position on this?
A: There is no flip-flop. At the moment it is an administered price. Rangarajan Committee has recommended that we move to a market related price. Note has to come to cabinet. Where is the flip-flop? It is an advised change of policy. The government will take a decision as and when the cabinet paper comes to the cabinet.
Q: The IMF cautioned that RBI needs to be vigilant on inflation and therefore must hold on to rates. What do you expect by way of a rate action in May? Do you think RBI will doubt government’s intent on fiscal consolidation and probably refrain from cutting rates?
A: There are many parts of your statement with which I can disagree violently. Firstly government’s intentions on fiscal consolidation are being translated into small and big steps virtually every month. We have demonstrated our capacity to contain the fiscal deficit on March 31, 2013. I have made it absolutely clear that these are red lines. We will not breach the red lines and we will achieve the fiscal deficit target that has been set for March 31, 2014.
I don't think the IMF is any say in these matters and I don't think the IMF need advice either RBI or government on policy rates. I am sure the RBI takes note of the actions of government on the fiscal side and the results of such action. The RBIs monetary policy advisory committee will advise the governor appropriately. I have no doubt in my mind that the governor will take an appropriate decision having regard to the actions taken on the fiscal side and the results of those actions.
Q: The Financial Sector Legislative Reforms Commission (FSLRC) Committee has recommended redrafting of financial sector laws. When do you think these changes will be implemented?
A: It is a very complex project. We have put out the FSLRC report in the public domain. We will now have to constitute groups to look at each part of the report. It is a very complex task.
Rewriting all of India's taxation laws, which have been written over 60-70 years is not an easy task. The fact that we constituted an FSLRC and FSLRC has given us report on time. We have put it in public domain is sufficient indication of the seriousness of the exercise. I cannot put a time limit on when that exercise will begin or be completed.
Q: What laws do you see getting amended?
A: They have given you a code. They have indicated, they have said all laws must be principles based and all laws must be amended to reflect the principles. I think this is a far reaching recommendation and one has to take it forward. I cannot put a time limit on such a complex and gigantic exercise.
Q: The Cobrapost allegation, which showed that banks have been involved in tax evasion. RBI investigation too has found there is some evidence of it. Will the ministry take action against banks?
A: I have made it clear that it will be the RBI which will look into the matter. Once the RBI reaches certain conclusions, if any laws have been violated, government will take stern action.
However, I do not think multiple bodies should look at it. Let the RBI look at it and let the RBI tell us what they have found.