SHASHI THAROOR (THIRUVANANTHAPURAM)
Mr. Chairman, I think it is vital for us to understand the role of commerce and industry in charting India’s economic destiny. The fact is that we all know our overwhelming objective as a country is to pull our people out of poverty, to help India grow and develop, to enhance the opportunities and chances available to the Indian people. And for this frankly we need, India is required,to engage economically with the rest of the world, which is what commerce is. And at the same time we have to enhance our industrial production, we have to employ more people in industry, and that is the other half of the Ministry we are discussing today. So, I think it is very important that we see how fundamental the work of the Ministry of Commerce and Industry is to the development of the future and the destiny of our country.
If we look at commerce first, we have to admit that at one time we were somewhat protectionist. This was a legacy of our nationalist movement. We knew the British East India Company had come to trade and stayed on to rule. And so, we were suspicious initially of foreign trade. We put up the protectionist barriers. We went down from about 2.6 percent of global trade in 1997 to 0.2 per cent in 1991. But with the opening up of our economy in 1991, the pace of liberalization and globalization, we were able to see a very interesting change in the picture. In the 1990s and the first part of the last decade, the world economy and world trade grew at an unprecedented pace, a pace unprecedented in human history. And this created favourable conditions, external conditions, for our own country’s growth .We enhanced our trade relations, we climbed back up towards two per cent of global trade, we continue to climb, and the increase in our foreign trade has been fundamental to our improved rates of growth as an economy in India in the last few years.
But at the same time if we have to look at the context since 2008, the world has been plunged into the worst financial and economic crisis since the great depression of the 1930s. We have weathered it well. There are many reasons and I do not want to go into them in great detail. But we did certainly have wise fiscal policies conducted by our Reserve Bank of India. We had a stimulus package by the UPA Government amounting to some three per cent of GDP, if we take the three stimulus packages together. Our manufacturing exports went down as everybody’s did during the recession. But our services exports went up. And it is also true that about 80 per cent of our GDP growth frankly depends on the domestic sector, on Indians producing goods and services for other Indians. And that was sustained as well.
As I had mentioned in this House before, the extraordinary level of remittances from our hardworking NRIs abroad continue to go up and that again has been a strength for us. But, we have to acknowledge that even if we have weathered this recession, the external environment is no longer so propitious for our growth.The developed world is still reeling under the crisis – 44.5 million jobs were lost, just in the OECD countries. The purchasing power of these economies is therefore down and they are less able to purchase our goods.
Take one example of India’s trade share with Europe and America. In 2000-01, it was 42.5 per cent. Today in 2011-12, it has gone down to 30.8 per cent. Why? It is because they do not have the resources to buy our goods. This is something that we have to understand. There was a decline at one point and our hon. Minister would remember this. When he became the Minister, in the preceding year, from mid-2008-09, there had been a decline of 39.6 per cent in India’s exports. This is the climate in which our Ministry of Commerce and Industry is facing the challenge of growth in our foreign trade.
They have adopted a multi-pronged strategy, providing a stable policy regime, adopting conscious market diversification and providing additional support to the sectors that have been badly hit by global recession. There has been an Integrated Foreign Trade Policy for the first time, a policy initiative to double the exports and trade share by 2014. As against the first target of 200 billion dollars by 2010-11, we achieved 246 billion dollars in exports. The target for the last fiscal year, if you look at last year’s report, it was 300 billion dollars. In fact, we, as a country, achieved 303 billion dollars. So, I must congratulate the Minister and the Ministry for having been able to consistently exceed the targets that they have set. However, it is also true, and I must admit this, as was said by the Opposition Member who spoke, that our imports have increased to 488 billion dollars, which has given us the highest ever trade deficit of 185 billion dollars. But this is due mainly to the near-doubling of the international price of crude oil. The Opposition could not control that; we could not control it; it rose, on an average, from about 65 dollars a barrel in 2010 to 115 dollars a barrel in 2011. There was also a rise in the price of gold, which we continue to import in vast quantities; I am sure, our ladies are partly accountable for this. Some 62 billion dollars of gold was imported. All of this inevitably will have an impact on our import-export balance. Even the prices of commodities like pulses and edible oils have gone up. We have to import them for our people.
The only solution is what the Minister is recommending, which is that to cut back on the deficit, we have to improve our exports. The Ministry has envisaged a target of 500 billion dollars by 2014. We have to admit that it would not be possible unless Indian exporters enter new markets and expand along the product value chain. I mentioned that the US and the European markets are now about 30 per cent of our Indian exports. We have to be able to deal with their financial downturn. The established markets are no longer as friendly as they were, to us. Our exporters not only need to be encouraged to retain their market share, but they also have to add and expand their value added products.
The Government has stepped in; and I must commend the Ministry for this. Indian exporters have been given new incentives, to explore new markets, through what is called the Focused Market Scheme, and to export specific products through the Focused Product Scheme. The market-linked Focused Product Scheme incentivises the exporters to place specific products in specific markets. Now, they have diversified export into 41 new markets, mainly in Latin America and Africa, which were relatively unexplored territories before. I hope that the Minister shall retain this scheme in the upcoming Foreign Trade Policy and include more products and more markets in this scheme.
Technology is also an important factor, defining the competitiveness of our exporters. The zero duty Export Promotion Capital Goods Scheme has helped exporters of products such as engineering goods, textiles, pharmaceuticals, etc. as was mentioned by the Opposition Member. They have all upgraded production facilities under this scheme. However, the scheme expired on the 30th March this year. Keeping in mind the Ministry’s ambitions and targets, I certainly recommend that this scheme be further extended at least up to 2014.
If I may add, we certainly need more and not fewer, Free Trade Agreements; I may disagree here with the Opposition Member. Concluding the long-drawn out negotiations with the European Union, on a broad-based trade and investment agreement and also with the Gulf Cooperation Countries on having an FTA, are indispensable. I know that progress has been made with the Europeans. We just received the European Parliamentary Delegation this week. The Minister speaks of concluding this before the end of the year. Some of the problems are not from our side. The Europeans are insisting on certain elements being mentioned in the Agreement, that are not acceptable to a self-respecting nation. There are things that we do ourselves and we do not need somebody else to put them into a Trade Agreement. But I am sure that Europe will see reason as we continue to negotiate effectively.
I think we clearly need more assertive diplomatic action on non-tariff barriers in certain markets which are preventing Indian export. Let me take China as an example. China has been mentioned by others, but not in this debate.
The India-China bilateral trade has hit a record 73.9 billion dollars last year. But the ballooning trade deficit in Beijing’s favour has risen to over 27 billion dollars. While India’s exports to China went up over 12 per cent over the previous year, Chinese exports to India crossed 23.5 per cent reaching 50 billion dollars which is a staggering growth over 2010. They are welcome to export to us but our trade deficit is growing and can only be reduced if our exporters are able to sell more to that country. Access for Indian IT goods in Services, pharmaceuticals and other products remain severely restricted. I call upon the Minister and the Government to increase the urgency and determination with which it speaks to China on this subject.
At the same time, I again disagree with the hon. Member and would like to commend the Minister and the Government for expanding our economic cooperation agreements looking eastward with ASEAN, and with six additional countries going up to the Pacific Ocean. The hon. Member asked as to what is the impact. I would like to tell him what the impact is. Exports to ASEAN are up by 30 per cent since the free trade agreement was concluded. After a similar agreement with South Korea it is up by 38 per cent. The policy has proved its worth and should be applauded by this House.
A new development, which has not been mentioned by the hon. Member, has been the recent breakthrough in trade with Pakistan. I would like to commend the Minister and the Government of India for this initiative. Pakistan has, as you know, expanded its list of tradable items with India. Starting from a small positive list of permitted goods, only a few goods were permitted for them to trade with us, they have moved to a small negative list of banned goods which is exactly the opposite approach. On our part, we have, of course, operationalised integrated check posts at Wagah Attari Border. This will give a boost to land cargo movement. It should create enormous trade opportunities, especially for the border States of Punjab, Haryana and Himachal Pradesh. I hope additional posts are opened, for example in the Hussainiwala area. For 17 years we had extended our hands. Since the days of Prime Minister Gujral, a one-sided most favoured nation agreement was offered by us. We gave them that status but they did not reciprocate. Finally they have come to meet us half way. I think it is now our turn to be helpful and we too Mr. Minister should be, perhaps, a little more generous on some of our non-tariff barriers and make it easier for their goods to get through into our country.
In this context, I would like to welcome the special thrust on enhancing our economic engagement with the SAARC countries in our neighbourhood. We have taken major steps to strengthen the border infrastructure, including the construction of state-of-the-art land customs facilities for easy movement of cargo over the land. Three land customs stations have been created along the Indo-Bangladesh border. They will be completed by the end of this year. Our neglected North-Eastern States can also revive further with free trade across land borders and I would really commend the Ministry on this and urge them to expand this constructive policy.
The hon. Member mentioned the Special Economic Zones. We have 153 Special Economic Zones that are functioning, employing nearly 9 lakh people. All these SEZs together account for less than a third of India’s exports. But in my view it is not true, that they are too many; I would argue they are not enough. Formal approvals have actually been granted for setting up 583 SEZs of which 380 have been notified but only 153 are operational. Exports from the SEZs initially did very well; 43.1 per cent growth in 2010-11, 121 per cent growth in 2009-10 but what have we seen last year? There was a growth of only 15.4 per cent. This is disappointing and this is to my mind something to which the Ministry has to pay attention to, perhaps not only this Ministry, because the decline in growth has been steeper last year after the imposition of the Minimum Alternate Tax and the Dividend Distribution Tax in the Budget of 2011-12. What is happening is, the result of imposing more taxes. The net income tax benefit in the SEZs is less compared to the promotional benefits like focused markets and the focused products scheme that the Ministry of Commerce is giving to units outside the SEZs. Consequently no new investment is happening and the units that have already got permission are reluctant to start operations because of the lack of enough incentives. So, I would urge the Ministry of Commerce to sit down with the Ministry of Finance and try and do something about this. Otherwise, our SEZs are not likely to fulfil our legitimate ambitions for them. Even, exports from the SEZs have come down as a proportion of total merchandise exports from the country. It used to be over 30 per cent in the preceding years. Last year, it was only 26.7 per cent. When you look at China, so much of their economic success, has been a result of what they have been able to do through their SEZs. At least, we should see that if others are prospering through this route, then why we cannot do so as well. If the SEZs want to sell products in the domestic market, they have to pay a very high duty. Maybe, we should find some flexible approach, Mr. Minister. For example, we can allow them to cater to domestic markets on the payment of a reasonable tax. This can also boost FDI in the SEZs. So, they could do that. Investors are looking for access to the Indian markets and we could use this to our advantage.
It has to be said that our transaction costs remain a problem. Transaction costs in our economy are about seven to ten per cent of our country’s exports. It is really an astonishing thing. Exporters and importers are spending between 13 to 18 billion dollars a year on transaction-related costs. This makes our exports uncompetitive. Effective steps have to be taken to reduce these costs. I will read one report in this regard. It says that the cost of exporting a container from India is 1055 US dollars, importing to India is 1025 US dollars whereas in Singapore the similar cost is 456 US dollars to export, 439 US dollars to import.
I know that a task force was set up by the Minister on transaction of exports. I think that the Minister of State was in-charge of it. I am very pleased to see him here. The task force identified issues across seven Ministries. I believe that the majority of these are being implemented. So, I do want to commend both the Ministers for their work in this regard. This task force has also recommended a scheme for direct electronic credit of service tax refunds for exporters. I think this will make a very positive difference.
The hon. Member mentioned the assistance given by the Central Government to States to develop their infrastructure. I must say that I was a bit confused by his statement. On the one hand, he said that there is not enough money, on the other hand he said that please do not spend their surplus balance. If there is not enough money, then how do they have a surplus balance? Clearly, resources are being provided to the States and the fact is that this will have a direct impact on reducing the logistical burden and thereby reducing transaction costs. The Government’s efforts to streamline the paper work; reduce the numbers of separate applications and increase the use of electronic process in clearances should be commended by this House.
In fact, in the last month, there was an excellent facility introduced to enable banks to receive data of post payments for exporters directly on the website of the Director-General of Foreign Trade. Now, you do not have exporters running around to access their Bank Realisation Certificates, which are needed for clearing export incentives and so on. They can access them online and file their claims. I think this kind of e-governance initiative – which this House has always stood behind – should be promoted in the future as well.
Of course, the issue of export credit is very important. The fact is that interest subvention which is mentioned by the hon. Member, of two per cent on rupee credit, expired in March this year. I hope that it will be extended. I would like to request the Minister to consider this keeping in mind the credit needs of exporters. Of course, banks are also required to reach a level of outstanding export credit, that is, equivalent to about 12 per cent of their adjusted net bank credit. But given how vital exports are to the growth of our economy, the share of export credit should be enhanced. I realise that it goes beyond the remit of this Ministry but it is worth considering.
The hon. Member has mentioned about agricultural exports. I think that we have to accept that there is a need to improve our exports in agricultural goods in marine products. They together accounted for about Rs. 81,600 crore in 2010-11. That is over 16 billion dollars. The agricultural sector of India suffers from a lower level of commercialisation, low productivity by any global standards, weak market orientation and the lack of infrastructure that we have all demanded be built. India is also lagging behind in investing in the agricultural and retail sectors. So, we need to move towards a retail supply system on the lines of Western agriculture.
There was a World Bank study on India, which showed that the average price that the farmer receives for a typical agricultural or horticulture product is only 12 to 15 per cent of the price that the consumer pays at the retail outlet. In other words, when you buy your subzi at the bazaar, you are paying eight times more than what the farmer has got for the same tomato or potato. It is a serious problem that we have here. Trade liberalisation in agricultural sector has to be initiated in a phased manner and the priority must first be to increase investment in order to create a holistic solution to this sector.
The plantation sector was also mentioned. I agree with the hon. Member that we need to strengthen exports of rubber, spices, tea and coffee. But I would say that the Ministry is taking the right step. So, I would actually use the same argument in favour of the Ministry and not in criticism because it is an important provider of employment and contributor to exports. Over two million people are employed in our plantation sector. More than four million people derive their livelihood from associated activities in the production value chain.
The fact is that there is resistance and resistance is from the developed countries, whose agriculture is so expensive because of higher wages there, that they subsidise their agriculture lavishly. In fact, in Europe, agricultural subsidies are so high that they would be enough to pay for every cow in Europe to fly business class around the world. Now, that is the kind of challenge we are facing when we try to export agricultural products. The Ministry must support our farmers.
Mr. Chairman, let me turn to the other half of the Ministry – Department of Industry. Manufacturing is, obviously, on everybody’s mind. It accounts for about 16 per cent of our GDP. I know I mentioned China a fair bit just to give you a context, but in China, it is 34 per cent of their GDP that comes from manufacturing. Now our Government’s objective, according to the Ministry, is to raise it to 25 per cent by 2020. That is a tall order. But the Ministry of Commerce and Industry is taking a number of positive steps in this direction. We must remember that manufacturing is essential to create more jobs. Manufacturing employs people and we all know around the world, if I can say this, that there is nothing more dangerous than unemployed young men. If you want to look at why our Maoists and Naxalites are picking up guns, it is because they do not have jobs available to them. We need to create more labour-intensive opportunities for them and that is why manufacturing is so important.
In the Demands for Grants of the Ministry, a provision of Rs. one crore has been provided for the scheme for implementation of the National Manufacturing Policy. This is a new thing. This whole initiative of the Minister to create a National Manufacturing Policy must be commended. It is a model for many other countries, certainly for many developing countries and perhaps for even some developed ones. It aims to create 100 million jobs in our country and contribute 25 per cent, of course, to our country’s GDP in a decade.
The most important aspect of this policy is that it seems to establish the National Investment and Manufacturing Zones and these zones will basically be industrial townships of, at least, 5000 hectares in size with world class infrastructure. Seven of these townships have already been notified and more are needed. Though I must say coming from Kerala I suspect that my State will never be able to find 5000 hectares and I hope the Ministry will consider some modest dilusion of these numbers for the States where greater pressure on land is there as in my case. The policy also has been able to show due respect for environmental concerns, workers’ rights, regulatory issues and I must say that the fact that they did the impact study before notifying these zones, was very important. I am sure the Ministry of Environment is very happy with this.
Another welcome development in these zones is that they are mainly on non-agricultural land, waste land, shrub land and this means that we are not taking this away, as the hon. Member alleged, from productive rich fertile farm land. At the same time, the ownership is going to be with the State Government so that the State Government should be able to acquire such lands where they exist. This means, of course, this will be easier in Rajasthan or Madhya Pradesh than in Kerala. That is part of life for us and we have to accept that. But that is where these lands are more easily available.
I worry a little bit about what I call the Fatehpur Sikri problem. You remember you built a beautiful town in Fatehpur Sikri and then discovered there was not enough water for the people. But the Ministry of Commerce and Industry has paid attention to this issue. They have conducted feasibility studies to ensure there is enough water in each of these seven new townships coming up and the use of a modern technology for this purpose is to be applauded.
The best example of this new policy, I must say, and of the new thinking, is the Delhi-Mumbai Industrial Corridor. India will now, thanks to this, have the world’s largest infrastructure project in history and its spine is a 1500 kilometre long dedicated railway freight corridor. The whole project covers 42 per cent of India’s land mass and six States are affected. It is estimated to attract an investment of around 90 to 100 billion dollars, that is Rs.5 lakh crore. We are talking of something of a gigantic scale of ambition over the next 30 years. This could employ easily three million people. On top of that, it is a 21st century concept, it is green technology, eco-cities are being dreamt of, and new townships are coming up. The Japanese Government has come up with the major funding. When their Prime Minister was here in December, he said that Japan will contribute 4.5 billion dollars for this.
So, we are really looking at an extraordinary venture and I hope this House will take an interest in the Delhi-Mumbai Industrial corridor and support it. Over the years ahead, it is going to be a shining star of our country’s accomplishments in this area.
Now, the policy talks about achieving real annual growth rate of about 12 to 14 per cent in this sector. It comes at a much needed time because, let us face it, the share of manufacturing in our country’s GDP has remained rather flat for the last decade. In 1999-2000, it was 15.1 per cent and in 2004-05, it was 15.3 per cent and in 2009-10, it was 16 per cent. That is pretty flat and that simply will not do because if you look at the historical pattern, in countries that are transitioning from overwhelming dependence on agriculture to becoming more industrial societies, the growth has been much faster than that. Therefore, I think, we should not criticise, as the hon. Member from the Opposition did, the Minister for his higher target. This is a target that we must aspire to in the interest of our own country’s future and our country’s development. We can keep setting up investment zones and SEZs but we will not be able to achieve this target until we really appreciate the underlying reasons for the slow growth in manufacturing. Firstly, it is too highly resource intensive in our country. The value added after accounting for material costs, fuel costs, royalty is less than 20 per cent of the output value, whereas in the US it is 54 per cent, in Germany it is 33 per cent and even China has a 29 per cent value addition. So, where material costs are rising in our present scenario, remaining competitive is going to be a major challenge for our exporters. This is only in the organised sector I am talking about. In the unorganised sector, the value addition is even lower. Fuel inputs, for example, in our country accounts for 5 to 7 per cent of the value output in India. Fuel costs so much for us, whereas in the US it is only 2 per cent. The rising fuel prices, consequent taxes, all these add to the problems of our industries and I am conscious of the fact that Government is aware of these problems and is moving forward to deal with it.
The policy, of course, as I mentioned, speaks about creating a 100 million new jobs. Again this is so necessary because the prevailing trend in the manufacturing sector is the opposite. According to the National Sample Survey, an estimated 2.7 million jobs have been lost to manufacturing. This has been mainly in the unorganised sector. We have been growing in employment, but it has been mainly in the services sector and frankly in the construction industry. There has been a construction boom around the country. The total employment in manufacturing is just short of 53 million. So, we have a huge challenge ahead of us because 80 per cent of this 53 million is in the unorganised sector and we have only about 11 million workers in the organised sector. Labour rigidity is a huge problem and it is ironical that in a labour surplus society like ours we should have this problem. This House has to bite the bullet of reforming labour laws because our laws today protect the jobs that already exist rather than providing incentives to create new jobs. We will have to face this sooner or later.
Another point is that wages in the organised manufacturing sector have remained stagnant. Average growth of real output was 12.7 per cent during 2005 to 2008 whereas growth in wages was only one per cent. We need to encourage workers to be paid better and more fairly in our industries and at the same time our technologists and engineers should be paid at par with Managers. It is because if you want to use high technology effectively, we need to attract technologists into manufacturing. But I want to conclude on that point by saying that the National Manufacturing Policy is an excellent initiative for which this House should really commend the Minister and the Ministry and the target of growth and employment generation is much needed. But we have to be conscious about the fact that it would take a great deal of work, especially to attract Foreign Direct Investment into this sector. That is why I want to talk briefly about Foreign Direct Investment which was mentioned by the hon. Member from the Opposition.
Sir, first of all, we should applaud the Minister for simplifying and rationalising FDI policy. In the past the investors had to go through 178 different Press Notes, RBI guidelines and so on to figure out what the Investment Policy of India was. Now, we have a single FDI policy document upgraded annually. I think, that is an excellent innovation and I would like to commend the Minister for that. And there are other innovations like “India shows”, 11 of them have been conducted around the world showcasing India as an investment destination in a number of key countries. However, FDI has been coming down significantly in the last few years plunging to 19 billion dollars in 2010-11 fiscal year, even though it rose again to about 25 billions dollar last year.
Investors need a stable policy environment. Developments like the retroactive tax introduced in the current budget, the General Anti-Avoidance Rule , obstacles raised by environmental clearances which have held up major investment projects in Orissa and elsewhere, rescinding of previously granted approvals, are all problematic. Ad hoc policy changes like the sudden imposition of export controls on cotton and then its withdrawal, convey confusing signals to both exporters and investors. Sometimes it seems to outsiders that India produces more politics than it can consume and so, sometimes we are consumed by our own politics. We really have to understand this and support national growth and objectives and politics should be set aside. We need to be predictable to the outside world.
India is still doing badly in the World Bank and in the World Economic Forum’s Ease of Doing Business Reports and rankings. In fact in the World Bank and IFC’s Report titled “Doing Business 2012”, India’s rank improved from 139 to 132. That is good but that is not good enough. We need to aim to get into the top 50 at least if we want to attract the kind of levels of investments that we need from around the world. This will require serious simplification of our regulatory framework both at the Centre and the States. It is not just the Centre that makes these policies.
I would call on the Finance Ministry to coordinate with the Ministry of Commerce and Industry to ensure that one Department does not undermine the good work of the other. Many of the policies here are beyond the Minister’s remit and some things require the consent of the Opposition Parties and the Chief Ministers of States. Take GST for example. The mere introduction of GST will add 1.5 per cent to India’s GDP. But as we all know, there has been some resistance to this and I would call upon those who have been holding up the adoption of GST and the Direct Tax Code to put the nation’s interest ahead of political considerations.
I would also say in disagreement with the Opposition Member that it is time for the Government to rethink its suspension of introduction of the FDI in retail. Detailed studies in various developing countries that have gone for 100 per cent FDI in retail, including China, Malaysia and Thailand, have confirmed that it is win-win, especially for farmers and consumers. Farmers tend to get more for their goods and the consumers pay a lower price. ICRIER has confirmed this also. Opposition of some States should not prevent introduction of a national policy. Let those States which do not want it not implement it. After all, trade licences are given by the States and not the Centre. So, if we introduce a policy and if some State does not want to implement it, then let others go ahead in order to enhance the livelihood of their farmers and consumers.
I would conclude this overview of our commerce and industry challenges by saying that India needs to get not only the policy but also the politics of trade and investment reform right. This requires continued enlargement of the political consensus on reform. I was disappointed by some of the remarks of the previous speaker, precisely because reform has been a consensual issue in our country since 1991 and three different kinds of Governments have ruled. We should actually broaden that consensus and should make adequate political efforts to engage public opinion on this sensitive issue and that is why, this debate is so important.
We must realize, and I say this with respect to the hon. Member, that even jobs in India depend not only on local firms and factories, but on faraway markets for products and services, on licences and access from foreign Governments, on an international environment that allows free movement of goods and persons and on international institutions that ensure stability, in short, on the international system that sustains our globalised world and that this Ministry is engaging with.
Today, whether you are a resident of Delhi or Dharavi, Bengaluru or Bhatinda, whether you are from Chennai or China, it is simply not realistic to think only in terms of your own country. Global forces press in from every conceivable direction. People, goods and ideas cross borders and cover vast distances with ever greater frequency, speed and ease. We are all increasingly linked together through travel, trade, the Internet, what we watch, what we eat and even the games we play.
In such a world, the work of the Ministry of Commerce and Industry is of fundamental importance for all our futures because our future in India cannot be subtracted from the rest of the globalised world. For this reason, Mr. Chairman, I would commend the hon. Minister and I would call on the House to support the Ministry and approve its Demands for Grants.