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May 08, 2006, 10.12 AM IST | Source: CNBC-TV18

Regulator is not a court of law: FM

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

On Sebi's order in the demat scam

P Chidambaram

Finance Minister

Finance Minister, P Chidambaram is attending the 39th Annual General meeting of the Asian Development Bank being held in Hyderabad.

Chidambaram believes the ADB meeting held in Hyderabad 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 Indian government is not only explaining its policies to the world, but also to the Indians. He also discussed the role of Sebi. 

 

Excerpts from CNBC-TV18's exclusive interview with Finance Minister P Chidambaram:

 

Q: What made Asian Development Bank, ADB, come to India?

 

A: Venue and date were decided two years ago, so I canít claim credit for getting Asian Development Bank (ADB) to this venue. The fact that Indiaís growth story has been unfolding now for a few years has encouraged ADB to chose this venue and has also encouraged so many Finance Ministers and alternate governors to travel to Hyderabad to attend this session. China, Japan, South Korea, all are here, all represented by Finance Ministers. I think that says a lot for how the world views India.

 

Q: So does it mean that you do not have to hard sell India because foreign investors have already come in here? You had said that many of them make more money or rather their profitability is higher than the global average, so it looks like some kind of a compliancy is in order.

 

A: We are not trying to sell or hard sell India. We are trying to explain our policies to the world and in the process; I believe I am also explaining our policies to the people of India.

 

If there is such a degree of convergence about the right policies to follow among the developing countries of the world, then a strong endorsement of those policies followed by India will help convince the Indians that the government is on the right track. It will also help forge a greater consensus among policy makers in India. The few dissenting voices would also have to sit up and listen to the voice of the world, which acknowledges that India is on the right path.

 

Q: In your Budget speech last year, you said that you were going to relax the FDI caps on insurance. Is that going to happen anytime soon?

 

A: 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 Authorityís (IRDA) final recommendations and if the bill can be drafted in the next month or two, I expect to introduce it as early as possible.

 

Q: Can we see the FDI relax in insurance for particular sectors, for example farm insurance or in particular enclaves like SEZ, which are normally not considered part of the domestic tariff area?

 

A: These are ideas. The general question is should FDI insurance be raised from 26% to 49%. 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.

 

Q: 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?     

 

A: 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 of India to help. We are willing to hold his hand and make sure that all his clearances are obtained from the state of his choice.      

 

Q: What explains the huge draw for SEZs?

 

A: 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

 

 

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

 

A: That is a judgment, which Parliament has already made. Whatever discussions took place within the government has taken place and bill has been passed by Parliament. Thatís 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.

 

Q: The Prime Minister spoke about the need to make growth inclusive. He spoke about getting the benefits shared by those, who are at the bottom of the social ladder. I am sure you yourself are of that view. Does it mean your government believes in affirmative action?

 

A: We are going away far from ADB. As I said ADB is not talking about affirmative action.

 

Q: Would it be required to make growth inclusive?

 

A: We are talking about ADB. We are talking about inclusive growth. We are talking about equitable growth. How each and every country will address the issue of inclusive growth is a matter of that country, that countryís people, and the composition in that country.  We are not talking about any particular country now. How to address inclusive growth in India is a subject that we can reserve for another interview.

 

Q: There was some difference of opinion between you and the ADB President because the ADB president 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.

 

A: You didnít 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 loan 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 live 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.

 

Q: So there is no difference of the opinion about it?

 

A: No, I donít see any difference of opinion on it.

 

Q: One of the previous requisites for attracting the 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 action last week?

 

A: I have not read the order, but I have seen the reports of the order. Last weekís order of Sebi was intended to be an interim order. Interim order 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 judgement about the quality of Sebiís order.

 

Secondly, I think there is a fundamental misconception about the nature of a regulatorís 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.

 

Q: 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.

 

A: I donít 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 canít take a non-legalistic view of a legal matter.

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