Davos 2018: Pace of reforms in India encouraging to investors, says Piyush Goyal

With regards to Indian Railways, he said 100 percent direct investment is permitted in railways, said Goyal, adding that Siemens Chief spoke about moving large part of the railways business they do world over from Vienna to India.

The opportunities Siemens would look at are technology for detecting flaws in railway tracks, at electric locomotives since India plans to go fully electric, better signaling systems etc., said Goyal.

Below is the verbatim transcript of the interview.

Q: The Prime Minister addressed the opening plenary session here, revives the confidence that investors have in the India story, continued to pitch the reform agenda. You have been speaking with investors here post the Prime Minister's address. What is the sense that you got about the key messages that they took away from that?

A: There is a buzz about India at Davos this year. There is an excitement about the huge market opportunity, there is an excitement about the changing mindset of business in India. Nobody had every imagined the kind of transformational initiatives that the government has been able to achieve in a short span of three years. Something like GST which was 14 years in the making, happening so quickly and quite effectively if you leave the first 3-4 months, which were in any case expected and were on the table right in front, the fact that corruption is gone in the country at the highest levels and people can, with confidence come and invest in India is something that a lot of investors talk about.

The scale at which projects are being executed in India and in almost every sector, be it in infrastructure, be in in developing services for the people, the railways, the road sector, the scale at which things are happening in India also provides good opportunity for investors because they are looking for a good amount of business when they come to a foreign country. So my own sense is that most people here had never imagined India evolving into this kind of an economic power house open for opportunities for business, opening its doors when large parts of the world are actually closing doors.

India is inviting and opening up for investments, for technology. We are not deterred by the globalisation trends, we are actually embracing globalisation. All of this has sent a very positive signal. There is a huge demand for our time during this Davos programme. We are actually unable to interact with everybody, as many people who want to talk about India, want to discuss investment plans, so you are literally having meetings while walking across the Congress Centre. It is a great, unique experience this time around.

Q: Since you spoke about the fact that foreign direct investment (FDI) continues to be welcome in India and the government is making additional efforts to liberalise the sectors that were so far closed. In fact, just recently you have announced further liberalisation. What about FDI in railways? The last big ticket FDI proposal for the railways was from GE. What can we expect in terms of FDI as part of your growth strategy for the railways?

A: 100 percent foreign direct investment is permitted in the railways. Yesterday I had a meeting with Siemens and Siemens overall has about a nine billion euro business with the railways internationally, largely coming out of Vienna. And when I just drew up the 4-5 immediate plans that we have, the Chief of Siemens had come with four ideas on the table. I offered him eight other business opportunities. He has actually told me at the end of the meeting, this is more than what I can digest in one meeting. Two weeks from now, I am coming down to India to discuss how we can move from Vienna to India large parts of our engagement in the railway sector.

Q: What specifically will they be looking at?

A: They will be looking at technology for detecting flaws in the railway tracks which will be a big cause for the accident. They are seriously looking at locomotives because now we are going to go 100 percent electric. They are very keen to invest in one more plant on electric locomotives. They are very keen on the electrification of 40,000 km more which is about 60,000-65,000 line km. Huge opportunity opening up there. They are extremely interested in seeing what can be brought in, in terms of better signalling systems.

So there were so many things on the table that he actually said two weeks from now, can we sit down and discuss all of these at length in India. And he said, coming from Vienna, I really cannot be competitive, but with Asia opening up, Africa opening up, other countries looking at expanding their rail networks, I think he realised that being in India, making in India, serving the world from India is the way forward.

Q: One of the issues perhaps that investors will want clarity on and this came up with recent railway tender where you did get the exemption from the standing committee to go forward with the global tender. The procurement policy which no says very clearly that there should be preference for local domestic manufacturing, how does that then reconcile with your message to foreign investors who are coming to make in India?

A: In fact it suits the foreign investors who are coming to make in India very much because when they come and make in India, they are a part of the make in India initiative and they get the same preference that any other company would get. But let me explain what the sense is behind that. It is more to do with the reciprocity in the first instance and more to do with bringing down investments and costs to provide service to the people of India in the second instance.

The first principle that our government is focusing on is reciprocity. Unless the country which wants to supply to India, allows an equal opportunity to India companies to participate in their programme, their development, their contracts, their business opportunities, it is very unfair that they should want to come and provide their equipment in India, but Indian manufacturers cannot provide equipment in those countries. So we are now, very seriously looking at reciprocity. A country which opens its doors for India, our doors will be open for them for providing equipment or services, point one.

Point two, India is an emerging economy, it is a developing country. People of India cannot afford very expensive products and services. Therefore, when you make in India, you make it much more suited for Indian conditions and at more attractive prices. So you will see, when we have given the preference to make in India, it aligns itself with the World Trade Organisation rules because we have not given a price preference.

We have said you have to still match the price that anybody else would have given. So in some sense, we have balanced the needs of the people of India, rising needs of the people of India, the service needs of the people of India with our own self-respect that it should be a two way traffic, not a one-way traffic into India. It is the first time it has ever happened in India. It is also a matter of our national pride and a matter of national sovereignty.

Q: Speaking of the Budget since it is around the corner, a lot of the Budget announcements that were made, for instance consolidation within oil and gas sector, we have seen the ONGC-HPCL deal go through, but there was also the promise of listings from within the railways as well. How soon can we expect that?

A: One was out in the market place last week. Another one should be out in the next 4-5 weeks. The one company, rather two companies which I have delayed, one is the Indian Railway Finance Corporation. There, we had a peculiar issue of minimum alternate tax (MAT) because that was primarily leasing to the railways, we had huge amounts of MAT credit which was accumulated and not getting converted to a potential asset for the future.

So effectively, IRFC was paying 56 percent of its revenues as MAT and a lot of that was going wasted. We are in dialogue with the Ministry of Corporate Affairs to exempt this class of companies which work with the railways because there will be many more which may in the future, want to get into the leasing activity with the railways, private or public. So we are looking at exemption for that class of companies which will immediately increase the valuation of IRFC and fetch us a true valuation. So that little delay is something which I thought was in public interest and national interest.

And the other company which I deferred for the time being is IRCTC. The IRCTC mandate is both being expanded within the railways and being contracted overall. So when I was doing the review of that company, I found that they were trying to diversify and put their finger into every pie and everything that was happening in the world. I am trying to make them focus and consolidate their activities, focus on giving passengers good service at good prices and my own thinking is that this kind of a focus will help IRCTC get both passenger satisfaction and better valuations in the future.

Q: Since we are talking about valuations and again in the context of the Budget, Budgetary support, last time, what you had asked for, the Finance Minister could not deliver on that number, but this time, do you believe that you will need to look at outside of the Budget for your funds?

A: When did we ask for something?

Q: Rs 60,000 last year, but you got about Rs 55,000.

A: I am not aware of that. I just came in 4-5 months ago. But, in fact the Honourable Finance Minister and the Finance Department had approved Rs 65,000 for the railways, but really we do not need that kind of money. I think the railways is quite efficient in its ability to raise extra budgetary resources. Frankly, the Honourable Finance Minister has much greater challenges on healthcare, on education, on serving the farmers of this country.

Railways does require funds, but we will have to move the railways to an efficient organisation, to a self-sustaining organisation to an organisation which makes its money out of its operations and not always dependent on government support. So my own effort is that as we move towards the New India 2022 that is nation is so much passionate about, Prime Minister is so much committed to, we should emerge as a new railway, we are looking at improving our operating ratios going forward, we are looking at bringing in efficiency.

Q: What are your targets on operating ratios?

A: I think by 2022 we should be able to bump it up to levels which are at about 85 percent which would be quite unparalleled in recent history of the railways and with honest accounting, something which we didn't usually very often have because we are moving into double entry book keeping as should be the want in any good corporation. Accrual system of accounting is being introduced in the railways.

So, my own effort is that efficiency will become the credo rather than just an organisation which is looking up to the Union Budget for funds. I have no demand of the Finance Minister, whatever he gives us is a bonus.

Q: What is going to be the areas of focus and priority, what are the targets that you have set for yourself in 2018 for the railways?

A: My first and foremost target has been on safety. We are investing large amounts of capital, we are investing management time and trying to introduce technology, so that Indian railways become a safer place to travel in. Track renewal had huge backlogs sometimes going into several years, this government has ensured that for safety there is absolutely no restriction of funds. We have opened the coffers for any amount of investment which will help make passenger traffic safer. As against about 233 kilometres of track renewal which was happening until August this year, which was by itself twice of what was happening earlier, in November we renewed 386 kilometres of track or thereabouts. In December we did 476 kilometers, so twice the number. So, effectively we are four times what we used to traditionally in terms of track renewal. The idea being to make sure that wherever maintenance is required is done post ace. I am looking at huge investments on the signalling side. Signalling can truly make Indian railways very safe even in the fog where we have huge punctuality delays and risk of collision. A good effective modern ETCS II system is what we are pitching for. There are four or five large companies in this field. We will be calling them soon for discussions to finalise what would be the most efficient and effective way to create a good signalling system in India which is safe, which adds capacity. So, the headroom between two trains can be reduced significantly.

The idea is that and investment about USD 10-12 billion over the next 5 years and we will commit that investment upfront. So, the companies can come to India and manufacture at Indian price. That is another big area.

In terms of passenger amenities, we are looking at catering to see how IRCTC can impactfully make a difference. Of course, mechanised laundries, we will have 100 percent mechanised laundries in the next six-seven months probably.

One other interesting area, I hope to be able to work on in the days to come, is going to be on expanding our high speed train network to more areas. Now that we have Mumbai-Ahmedabad on the table, we are working with the National Highway Authority of India (NHAI) and Nitin Gadkari, Minister for Road Transport, to see if we can have more integrated thinking and use the national highway network for elevated rail and the rail network for elevated road.

So we have just had some preliminary discussions. That is one more area that I hope will have an impact in the days to come.

Q: I did a panel yesterday with about 20 corporate CEOs and consensus in that room was that they believe that the corporate tax will be brought down to 25 percent this time around in the Budget which was the stated objective of the government. Do you believe that the priority this time will be more on trying to alleviate the pain that we are seeing in the agrarian economy as opposed to perhaps a significant cut as far as the corporate tax rate is concerned?

A: About the Budget, I wouldn't be able to comment. I have no clue. I am here in Davos.

Q: What would your thinking be, as somebody who has tracked investors and of course business?

A: I think one good thing about Prime Minister Modi and Finance Minister Jaitley has been that they have consistently stayed the course of good governance, reform and what is good for India in the long run, what is good for people of India, structurally strengthening the Indian economy. They have not looked at Budgets as an end, they have looked at Budgets only as a process, as means towards the larger objective of a developed India and I don't think this Budget is going to be any different. FM Arun Jaitley, in a very understated and quiet manner to my mind, has done more reforms than any other FMs in the past. In a very sustained way, he has engaged with all stakeholders, he has been able to get GST on the table successfully, he has renegotiated international treaty which is something which we were always told is impossible to do to bring in transparency and curb black money, foreign money coming into the system and with all of this, he has been able to attract investments to the extent that we now have USD 60 billion coming against USD 36 billion four years ago or three years ago.

All of this reflecting the huge confidence that the world has in PM Modi and FM Jaitley's ability to deliver good Budgets, Budgets which are good for all, Sabka Saath Sabka Vikaas.