Devil's Advocate: Sunil Mittal on the economy

What do the industrialists think of the Indian economy and what steps do they think the Government needs to take to tackle the challenge the country faces. That is the key issue Karan Thapar took up with one of India's top industrialists, the Chairman and Group CEO of Bharti Enterprises, Sunil Mittal on Devil's Advocate.

Karan Thapar: Mr Mittal, let's start with the state of the economy. On the one hand we had better than expected fourth quarter results and the economy as a whole during the last year has grown by something like 6.7 per cent. But on the other hand, exports have steadily fallen for seven months in a row, manufacturing growth is just 2.5 per cent compared to 9 per cent the year before and maybe we have lost something like 15 or 20 lakh jobs. So what is your considered assessment of the economy?

Sunil Mittal: As you rightly point out, it is a mixed bag but I would say more on the positive side rather than negative. The world has gone through hell. We all know where the US is, the Western economies are. We all travel and see the pain of it all around. If we compare ourselves to the rest of the world, I think we are in great shape. A 6.7 per cent for a trillion-dollar economy is no mean achievement.

Karan Thapar: So you agree with the view of Mr Tendulkar, who is the head of the Prime Minister's economic advisory counsel that the economy is a) reviving and b) we will begin to see healthy growth in the second or third quarter of this year.

Sunil Mittal: I would say a cautious yes. There is an air of expectation all around with the new Government having taken position. People have great expectations from the upcoming Budget. The manifesto of the Congress party and the UPA clearly suggest that formidable steps will be taken by the Government to take care of all stakeholders of the society.

Karan Thapar: Let's focus on manufacturing. Not only is manufacturing growth down to just 2.5 per cent compared to a much healthier 9 per cent, but in the fourth quarter, it was actually negative. As a former chairman of CII, how worried are you by the state of Indian manufacturing?

Sunil Mittal: Manufacturing has been a cause of concern for a couple of decades now. India has seen the manufacturing coming down year after year. In the last four or five years, we saw stabilisation and then recovery of the manufacturing sector. The last one year has been a blip again, but do remember that prior to last year, the four or five years have been robust years of manufacturing growth. Even now there are pockets which are doing very well. Take the special example of automobiles – some companies have grown tremendously even in the last year.

Karan Thapar: But you do accept that manufacturing as a whole has become a problem for the Indian economy.

Sunil Mittal: I wouldn't say it's a problem but it has gone into a consolidation phase where the growth has been limited in most of the manufacturing sectors. Real estate has shrunk, the infrastructure slowed down, therefore steel, cement and by virtue their associated sectors, not to forget exports, did suffer on account of the world economy slowing down.

Karan Thapar: You also have a venture with Wal-Mart, which means you have a great interest in agriculture and the agricultural growth this year is just 1.6 per cent compared to a far more robust 4.9 the year before. Is agriculture a problem area or should agriculture be seen in terms of cycles and in four-year ranges rather than one year at a time?

Sunil Mittal: If you just go two quarters back, agriculture was looking good. We were all very happy that agriculture had started to contribute to the economy but given that 60 per cent of India's population is reliant on agriculture and the share of the GDP pie for agriculture is only 17 per cent, there is a skew. If agriculture starts kicking in, it will take care of a lot of pressure that the Government faces in the rural areas. It has slowed down but we have seen slower growths in agriculture in the past. So I am not pessimistic about agriculture. Technology, injection of infrastructure to rural areas should hopefully do some magic there.

Karan Thapar: Given the economic pictures that you helped paint for us, do you believe that the country needs another stimulus package or are you a little worried by the ballooning fiscal deficit which is already touching 8 per cent and if you add in the state deficits it could be crossing 11 or even 11.5 per cent. So can we afford another stimulus package?

Sunil Mittal: From my point of view a stimulus package should come in the form of massive public investments. I am not looking for a stimulus package in terms of doles to the industry or particular sectors of industry, barring one or two, which may be really on crutches which need support. A stimulus package should come in the form of massive public sector investments.

Karan Thapar: When you talk of massive public sector investments, are you talking primarily about investment into infrastructure?

Sunil Mittal: Yes, I am.

Karan Thapar: What are the areas of infrastructure where particular attention is needed or do you think anywhere would suffice because at the moment Indian infrastructure is in a very poor state.

Sunil Mittal: Actually anywhere will suffice, but there are areas where the private sector is taking a pole position. Take the case of telecommunications. The Government does not need to worry about it. In fact they are seeking a lot of funds from telecom to invest in other infrastructure areas. Roads, ports, thankfully, we will have six swanky airports in the next few years in the country which will be a great start. Railways, and electricity power. Power is a huge issue in the country today.

Karan Thapar: The problem with infrastructure is that successive Indian governments have talked about it, they promised to do a lot about it, but actually it does not translate into reality. Most people turn around and say that implementation and execution is the problem. Would you agree with that?

Sunil Mittal: Yes, I would say the outlays have been very strong. Every successive Budget speech has given massive dollops of money to infrastructure sector. The implementation has been iffy or if not weak altogether in some of the areas. My personal view is that there has got to be a better mechanism to monitor the projects. The five-year plan has $500 billion of outlay for infrastructure. Can we spend that and can we spend it wisely? That would be the question.

Karan Thapar: What would your advice be to the Government – both as a former CII chairman and as also chairman of Bharti Enterprises – to improve implementation and execution?

Sunil Mittal: My mantra is simple. It has got to be a PPP model. Have the participation of the private sector. What you will see in two years time in Delhi and Mumbai in terms of beautiful airports, which have already been done in Bangalore and Hyderabad, are very clear examples of where the Government might and can support private sector participations for execution.

Karan Thapar: The Deputy Chairman of the Planning Commission Montek Singh Ahluwalia said in this very programme two weeks ago that rather than the Government clearing projects that are already assigned to individuals, where the individual himself or herself could be controversial, so the project itself becomes controversial. It would be better for the Government to clear the projects, arrange for all the permissions, and then auction it. Clearing projects without an association with an individual is an easier way around it, he had said. Do you think that makes sense?

Sunil Mittal: I think it is a good suggestion to have the projects ready to go because there is no point announcing a lot of PPP projects, fill up the pipeline and then the projects don't take off. I think it is a good suggestion.

Karan Thapar: So you think this is sort of clearing of projects and through these projects, greater investment in infrastructure is the answer to stimulating the economy. There is no need to expand money supply or make money cheaper. That has already been done enough.

PAGE_BREAK

Sunil Mittal: I think money supply has improved dramatically. Making money available to businesses and trade at a cheaper rate is always a desirable element. In the last couple of years, the rates of interest did go up. The world wide interest rates are very, very low. I think for making Indian industry competitive, some tweaking of interest rates are warranted and we have been seeing the Finance Ministry and others nudging the banks to lower their interest rates.

Karan Thapar: But your advice today to Pranab Mukherjee as he gets to the last run of his Budget preparation is concentrate on investment and infrastructure, take Montek Singh Ahluwalia's suggestion of clearing projects rather than individuals, and don't worry too much about money supply, a little tweaking here or there but the main focus is infrastructure?

Sunil Mittal: I absolutely agree. India needs to fix its infrastructure rapidly.

Karan Thapar: The Government has talked about disinvestment in the President's address. Once again in the interview with Montek Singh Ahluwalia, he said it would be extensive that the Government would come up with three to four years schedule disinvestments, and as he added, 51 per cent is really the only limitation on the Government. Is that an attitude to disinvestment that cheers you?

Sunil Mittal: Absolutely. I am a big supporter of disinvestment. I personally believe the Government needs to pick up these large amounts of billions of dollars, tens of thousands of crore from these disinvestments and put them into both infrastructure and social programmes. The Government will need the money. They will have a limitation on their fiscal responsibility. They will not be able to spend too much but they can access money from each one of these disinvestments and raise money.

Karan Thapar: I noticed from your answers that you think money from disinvestment should be used for infrastructure both physical and social, not actually to cover the fiscal deficit?

Sunil Mittal: No, I personally believe these are valuable crown jewels of the Government. When they pick up money out of this, it must only go towards benefit of the nation which are infrastructure and social projects.

Karan Thapar: You are talking about disinvestment and are happy with that, you are not really pushing for privatisation.

Sunil Mittal: From my point of view, if there will be a political consensus - and that is a very important if - the Government should get out of businesses as much as they can. The other area of pulling in money, which is something I really hold dear to my heart, is that there are large tracts of unused land across the nation. Take the case of defence lands. A cantonment used to be outside the cities, but those cantonments are now within the cities. Disinvestment or sale of the Delhi cantonment could change the face of Delhi completely. Divestment of land or modernise the defence equipments for example.

Karan Thapar: You are saying two very important things. You are saying privatisation would be better than disinvestment but given that there isn't a consensus for privatisation, you are very happy with disinvestments and secondly you are saying, disinvestment can happen in many things not just PSUs, even cantonment land.

Sunil Mittal: Absolutely. The cantonments can shift outside the cities where they should be. That was the original plan when these cantonments came up. But if somebody applies their mind, every city in this country has a cantonment.

Karan Thapar: You have just given a huge thumbs up to Government's idea of disinvestment, the problem is side-by-side, the DMK and the TMC have publicly said that they are not only against disinvestment but they see it as a pro-rich policy and they don't support it at all. Does that worry you?

PAGE_BREAK

Sunil Mittal: Yes, again in the domain of political management, my personal view is owning additional equity in businesses is of no use for the Government but that money – if they can release and apply it to social sectors – is certainly a politically good thing to do.

Karan Thapar: How disappointed would you be if after making all this talk about disinvestment, the Government actually does not act?

Sunil Mittal: Life goes on. In the last 10 years, we haven't seen much disinvestment, the country has moved on, nine to almost 10 per cent growth, we have done well. It is a nice thing to do but I wouldn't say it is something that if it is not done will compromise the country.

Karan Thapar: In the same breath, let me mention three other things that the Government has talked about. I am talking about raising insurance caps, banking and pension reforms. These are commitments that the Government has made before. In fact insurance cap goes back to the first Budget of 2004 and it hasn't been delivered on it yet. This time around, now that they have reiterated their promises, is this a credibility test for the Government to deliver or again would it not matter?

Sunil Mittal: I think some reforms are required. Insurance for example, going from 26 to 49 per cent, would have no implication because the rights for foreign-owned participated companies, whether it is 26 or 49 per cent, does not change. It is only a matter of putting in more money into the sector.

Karan Thapar: So the Government should go ahead with that?

Sunil Mittal: Absolutely, and the Government is committed. They have introduced this in the Rajya Sabha, they had political difficulties. If they can build a political consensus, they should get there.

Karan Thapar: What happens if once again, having promised it, they don't deliver on insurance caps, banking and pension reforms. Would that be a bad signal or is that something the country can live with?

Sunil Mittal: I am optimistic. My view is that we will see some movement. How far that will be, I don't know.

Karan Thapar: But you are an optimist?

Sunil Mittal: Yes.

Karan Thapar: Now let's come to reforms that the Government hasn't spoken about at all. Let's start with the need to FDI in retail. It is something that the Government has thought about but is not committed to and is scared of. Do you think it's an essential reform?

PAGE_BREAK

Sunil Mittal: I think if you have to get agricultural linkages and have the benefits of the agricultural power that India possesses in its right way, retail reforms are almost a necessity. Now the question is how fast and how soon you can do it. The Government feels that logistics need to be improved, farm technique needs to be improved, the whole cold chain which is missing in this country needs to be established. You can see that the Government is committed. The question therefore is now whether the final front-end store will be allowed for foreign investment.

Karan Thapar: How do you convince the Government that the fear that they have about FDI in retail adversely affect small corner shops and the unorganised sector is an unrealistic fear, an exaggerated fear? How do you convince them?

Sunil Mittal: If you look at the Western world even today the debate goes on as to how many more stores can TESCO open in the UK or how many stores can Wal-Mart open in the US. This debate therefore is not new and now unwarranted. This debate has to be had. The question is for how long will the debate happen? There have been reports by the Indian Council of Research in International Economic Relations (ICRIER) and many others have worked on the impact of organised retail over the unorganised sector.

Karan Thapar: Do you think that the proof that the unorganised sectors claim to have – that wherever in Europe and America large retail has set up, small shops have shutdown and there has been a big affect on small shopkeepers – is exaggerated?

Sunil Mittal: I will give you an example of Mexico which is more close to our own situation here. The Wal-Mart is now the largest player in Mexico. The unorganised retail has actually increased its presence in Mexico during the same period that Wal-Mart has established themselves.

Karan Thapar: So this cuts both ways?

Sunil Mittal: My view is that in a country like India of a billion people, both will flourish.

Karan Thapar: What about labour reforms? It is an area where industrialists are pushing the Government. What's your view? Do we need labour reforms to encourage investors and increase employment or is labour reform an over-exaggerated issue because most industrialists have learned to live with the system?

Sunil Mittal: If you are asking whether that is on top of the list which needs working on, the answer is no. My view is that some of the old legacy establishment industries are struggling with some labour issues. All the modern new industries have very little of these issues. Thankfully, there are no strikes. Indian labour is much more efficient in their workplace, much more work-oriented. I think, labour reforms are again something desirable but having a hire-and-fire policy in a country like India is not going to be an acceptable task and neither should that be a requirement from the industry.

Karan Thapar: This is very interesting. Here's an industrialist that says hire and fire in India should not be the target that industrialists push for?

PAGE_BREAK

Sunil Mittal: We must be much more benevolent and much more caring of our labour force. That is a philosophy I hold very dear and I think all industry players must. Having said that, there will be industries in distress and there is no point having the whole industry go down. They need to have some flexibility from time to time. So it will be desirable for the Government and industry to come together, create a platform in which they can have a discussion when in trouble, and should discuss how should industry behave vis-a-vis its labour.

Karan Thapar: But it is not priority number one?

Sunil Mittal: Well, certainly it is not.

Karan Thapar: Let's now come to the issue of oil price. The Petroleum Minister has hinted that it could be deregulated. Montek Singh Ahluwalia has publicly said that this is an opportunity and he believes that this should be done. The oil price at the same time is edging above $70 towards $75. Do you think we need to tackle deregulation of petrol, diesel and cooking gas urgently?

Sunil Mittal: I think it's again an issue. As we all know, there is a very huge subsidy involved here, people are used to consuming petrol, oil and gas products at subsidised prices. Tweaking this or making it go to market-related prices is going to be tough. So politically, there has got to be an act of balancing here.

Karan Thapar: You are a very understanding industrialist. I mean, on things that other industrialists push for – like labour reform, like deregulation of the oil price even on an issue that concerns you like FDI and retail – you are much more understanding of the political difficulties than most industrialists.

Sunil Mittal: I think you have to face the reality on the ground and for me any increment in growth rates at the cost of societal strife or stress is not warranted.

Karan Thapar: Societal strife is something that the Government must keep an eye on and they must modulate the push for growth to a shore that they don't endanger society's harmony.

Sunil Mittal: When the Government refers to inclusive growth, it really takes care of the whole package.

Karan Thapar: How critically will you be watching the Budget on Monday, July 6?

Sunil Mittal: I am unlikely to be here but I will probably watch it from wherever I am in the world. I am very hopeful that the Government is going to give a very strong signal through this Budget which will ensure that the industry cheers and feels good about the Budget but equally, the aam admi (common man) is taken care of.

Karan Thapar: But the fact that you are not here itself suggests that the Budget is not a priority that you are waiting for with anxiety?

Sunil Mittal: I wouldn't say there's no anxiety. From my point of view, I would love to be here. I have been here during most of the Budgets but I will be travelling and therefore I wouldn't be here.

Karan Thapar: Sunil Mittal, a pleasure talking to you.

Sunil Mittal: Pleasure.