Devil's Advocate: Kamal Nath

STRONG VOICE: Kamal Nath says Nandigram issue has nothing to do with the SEZs.

        

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Karan Thapar: Hello and welcome to Devil’s Advocate. After Nandigram, is the Government still committed to SEZs and does it believe that time has come to permit large corporate houses in FDI into the retail sector - those are the two issues I shall raise today in an exclusive interview with the Minister of Industry and Commerce Kamal Nath.

Minister, lets start with SEZs. It is reported that the Empowered Group of Ministers (E-GoM) could be considering giving permission to those SEZs where there is no land acquisition issue to go ahead. Do you believe after Wednesday’s events in Nandigram, that could still be the case?

Kamal Nath: You said it Karan, where there are no land issues. Nandigram was a land acquisition issue and its nothing to do with an SEZ. So, where there is no land issue, there is no issue of land acquisition, the Group of Ministers would consider such cases.

Karan Thapar: And you are hopeful that this will be the case, they will consider it and they won’t get put off for political reasons?

Kamal Nath: Well of course there is a fear now where land acquisition is concerned, where land is in dispute. But where there is no land in dispute why should one be worried about it?

Karan Thapar: So you remain an optimist on this?

Kamal Nath: I am an optimist of course.

Karan Thapar: The Indian Express has already reported that so far, because of delays in giving clearance, up to Rs 1,000 crore of investment has been lost to India because foreign partners have pulled out of proposed SEZs. Are you worried that if for political reasons or for fear, the Empowered Group of Ministers don’t give clearance - as you are hoping - that figure of Rs 1,000 crore could grow sharply?

Kamal Nath:Of course I’m worried because there is the investment competitiveness from Thailand, Philippines and Indonesia. If FDIs are coming into our Special Economic Zones, they can jolly well go to Thailand or Philippines or Indonesia. Investment has to be attracted it cannot be demanded.

Karan Thapar: And the attraction would be if it is done quickly, if there is a delay, they will go because their money will take them.

Kamal Nath: Of course they will feel the instability. At the end of the day they are here because they look at India as a credible country.

Karan Thapar: Minister, the problem is that the very concept of SEZs as a vehicle for attracting investments and for creating employment has come to be deeply controversial and deeply criticised. Let me ask you bluntly, after Wednesday’s killings in Nandigram, does the Government remain committed to SEZs or might you use this freeze as a way of politically wriggling out.

Kamal Nath: There is no political wriggling out. It is an act of Parliament, and the Cabinet has considered it. But there is the issue of land acquisition, which must be equitable, must be fair, must be at the right prices must be inclusive of the people. Nandigram was a very unfortunate incident of land acquisition and we must not confuse land acquisition. You had the TATA car project, which was not an SEZ.

Karan Thapar: So, you are saying don’t confuse land acquisition or the problems of land acquisition with the viability of SEZs…

Kamal Nath: Absolutely, they are two distinct things.

Karan Thapar: Let me repeat that question. The Government therefore remains committed to SEZs?

Kamal Nath: Absolutely.

Karan Thapar: Nandigram and political concerns have not put you off?

Kamal Nath: They have not put me off. We need to look at land acquisition and we need to look at rehabilitation, we have to do all that.

Karan Thapar: And the Prime Minister is with you when you say that he too is committed to SEZs?

Kamal Nath: Well the Prime Minister made a statement in Parliament a couple of days ago.

Karan Thapar: But that was before Nandigram so once again I am asking you after Nandigram, the Government as a whole is committed?

Kamal Nath: Of course, the Government is committed.

Karan Thapar: All right In that case lets look at SEZs and lets look at the sort of situation they create. Your secretary in your Ministry, GK Pillai, has told Outlook magazine that if all 234 proposed SEZs were to go ahead, India would see a 2,50,000 crore increase in investment, 30,00,000 new jobs, and over the next three years, the GDP would increase by three per cent. Are those fanciful facts or do you stand by them?

Kamal Nath: It is not fanciful at all, it is a fact. India is emerging as a major manufacturing hub and in this hub manufacturing for exports is the most important.

Karan Thapar: So, SEZs are the engine of growth?

Kamal Nath: SEZs are the engine of growth, they are being established and they are on the ground.

Karan Thapar: The problem is that many of your critics dispute those facts and dispute that understanding of SEZs. Let me put to you what they say- to begin with, the Ministry of Finance is letting people know that SEZs over a period of the first four years would incur a loss in revenue of Rs 1,00,000 crore because of the tax, excise and duty concessions you are giving them.

Kamal Nath: First, economic activity generates more revenue. One can’t be more basic than that and this is no rocket science. Number two, when exports are there you refund your customs and excise duties. Taxes are never exported. So, if on one hand, if you creatively calculate that I never collected these taxes - not saying that I am going to refund them as when they are exported, I am also refunding them - it gives you a distorted picture.

Karan Thapar: So, when the Ministry of Finance says that there will be losses, they are only giving half the picture and that’s why it is a distorted picture. They are not giving the full picture?

Kamal Nath: The Ministry of Finance has to present their own case and that’s the way they are doing it.

Karan Thapar: But you dispute it entirely?

Kamal Nath: I believe there is a very major substantial revenue gain and it doesn’t take much because any increase in economic activity is going to create jobs, it is going to create Income Tax for those people who are going to get those jobs, they are going to become consumers and going to pay taxes. So, obviously, there is an increase in revenue.

Karan Thapar: Not a decrease?

Kamal Nath: Not a decrease.

Karan Thapar: The second criticism made of SEZs is that in fact they won’t realise the sort of jobs you and your Ministry keep saying will be created. They say that 60 per cent of the SEZ proposals that you are considering are in the IT sector, which means they will have minimal, if any, impact on rural employment, where in fact the impact is needed. How do you answer that criticism?

Kamal Nath: IT sector has to go where people are available but SEZs are not about the IT sector alone, SEZs are about manufacturing, SEZs are going to go where they can export because they are largely meant for exports. So, SEZs are not meant necessarily to go to the backward district.

Karan Thapar: Do you have enough SEZs in the manufacturing sector to actually give a meaningful boost to employment?

Kamal Nath: Of course, the whole canvas today if you see what SEZs in principle approvals are there, formal approvals are there, there are so many gem and jewellery sector, textile sector and leather sector and they are all coming up they are on the ground, 50 of them are under construction.

Karan Thapar: The problem here is that your own colleague in your Ministry, Jairam Ramesh, goes around giving the impression that most of the SEZs are not involved in what he wants them to be involved in, which is labour-intensive units. Instead, he says they are IT-related and they will have a minimal impact. He, in a sense, is giving the wrong impression to people.

Kamal Nath: I don’t know what he is doing, I don’t think I have ever heard of that but the fact of the matter is that even if it is IT…

Karan Thapar: Let me quote to you what he said to Outlook magazine on February 12: “They (SEZs) should be a tool for promoting labour-intensive units, it seems that is not happening and if that’s the case, the policies should be reviewed.

Kamal Nath: That’s not correct.

Karan Thapar: So, he’s wrong?

Kamal Nath: There are 50 SEZs on the ground being built and they have started functioning.

Karan Thapar: And they will increase employment?

Kamal Nath: They are on the ground and it is open for everybody to see.

Karan Thapar: And they will increase employment?

Kamal Nath: How can you manufacture without employment? How can you even put an IT SEZ without employment?

Karan Thapar: So, there will be a meaningful impact, not just a marginal impact on employment?

Kamal Nath: Any impact on employment is good and this is going to be meaningful also.

Karan Thapar: In that case, lets come to what many consider to be the biggest problem with SEZs-the manner in which the land is being acquired. I know you made a great point of distinguishing between land acquisitions on the one hand and SEZs on the other, but SEZs also require land acquisition and many states are voluntarily stepping in to do it. The problem is that land acquisition is exciting emotion and passion and creating trouble. How do you get around that problem?

Kamal Nath: We need to have a good land acquisition rehabilitation policy. The rural development ministry and the rehabilitation ministry are looking into that, there is no doubt in it that rehabilitation and land acquisition must be transparent.

Karan Thapar: Let me put it to you like this-many people say that the only way in which the land acquisition will become transparent and overcome the emotional problem is if in addition to giving the disposed farmer the market price for his land, you also give him the stake in the development that is going to take place there. Will your Government’s new rehabilitation and resettlement policy actually make that jump?

Kamal Nath: I think the rehabilitation policy is looking at all these things and whichever way it happens, whether it happens by a stake or by giving him a job-by whatever way-he must necessarily be a part and parcel of it. As I said, land acquisition must be all-inclusive.

Karan Thapar: At Nainital, in October, just six months ago, Sonia Gandhi when she was addressing a rally, the Congress chief said this about land acquisition-could farmers also not become stakeholders in the projects that come up on the land acquired from them?

Kamal Nath: Very rightly said.

Karan Thapar: Do you think your new resettlement and rehabilitation policy will make that happen?

Kamal Nath: It’ll not be my policy, but my Government’s policy.

Karan Thapar: But will it happen?

Kamal Nath: This is for the rehabilitation ministry and for the rural development ministry to work out, but I would fully support it.

Karan Thapar: You are pushing for it.

Kamal Nath: Of course I will fully support it.

Karan Thapar: So, you are confident that in fact this will be the end outcome?

Kamal Nath: Of course, it must happen and I think that’s the right thing to do.

Karan Thapar: Let me put one last thing to you: speaking in the Lok Sabha on March 8, the Prime Minister said and I quote, “If we have made any mistake, we will make necessary corrections.” Now many people say looking at the SEZ policy that there is one serious lacuna-you haven’t given SEZs the permission or the power for labour law flexibility. Can you correct that at this stage or is it too late?

Kamal Nath: We haven’t provided it in the SEZ Act and it should not be provide in the SEZ Act.

Karan Thapar: But you wanted to?

Kamal Nath: No we wanted to give the state governments the freedom and the state governments still have that freedom.

Karan Thapar: Under the Act you passed?

Kamal Nath: No, not under the Act I passed, but under the labour Act because some of the state governments also asked for it. So, some of the state governments had written to us asking for it.

Karan Thapar: So, what you are saying is that it may not be in the Act in the way the we wanted do it or thought we could do it, but it is still available to the state governments to do. In other words, those state governments, which believe their respective SEZs should have a ‘hire and fire’ policy, can give them that liberty?

Kamal Nath: Not on everything or on all the labour laws. There are various types of labour laws.

Karan Thapar: But they can make it less rigid?

Kamal Nath: They can make it more attuned to the specifics of that area. We must understand a new thing, which is happening and I must say it that there is a competitive atmosphere within states. States want to draw investment. Whatever they think is in the interest of the state, they will obviously want to do it.

Karan Thapar: So, as the states compete with each other, to attract investment and as they compete to make their SEZs more attractive, they have the room to make labour laws less rigid and more attractive?

Kamal Nath: They have asked for it, but the Central Government has so far not responded to it and I think this is something that the chief Ministers will themselves take it up in the next chief ministers’ meeting.

Karan Thapar: But you vote as an individual minister will be to give them if they want it?

Kamal Nath: I would say this on one side is employment protection and on the other is employment generation, we need to create a balance.

Karan Thapar: Absolutely, but create a balance that attracts investment. And so, if the states are asking for it, consider giving it to them.

Kamal Nath: Of course, I would consider it.

Karan Thapar: Minister, let’s turn towards FDI or whether large corporate houses should be permitted to enter the retail sector in India. You commissioned a study from ICRIER (Indian Council of Research in International Economic Relations) on the impact that this would have. People say you have chosen the wrong organisation because two years ago they produced a study to say that in fact FDI in retail would have no real meaningful impact on small retailers. Have you chosen a partisan group to do this study?

Kamal Nath: I think ICRIER is very credible and this time we have given them a much more holistic view. It’s not just FDI, it is whether large retails by the big houses, how does it impact the small players. Does it dislocate them? We’ve also put there what is in the interest of the consumer. We’ve also put there what they do for the economy.

Karan Thapar: Quite right. And you think ICRIER is the right body to do this. It’s not party-pre and prejudiced?

Kamal Nath: I don’t think ICRIER is prejudiced. It’s got a lot of credibility.

Karan Thapar: There are reports in newspapers that PMO has assured traders that in fact the Department of Industrial Policy and Promotion will conduct a separate independent study. Is that confirmed?

Kamal Nath: Well, it is my department - the department of IPP - which has commissioned the study.

Karan Thapar: So this is not a separate study?

Kamal Nath: No.

Karan Thapar: Reports that suggest that it’s a separate study are, therefore, wrong?

Kamal Nath: Absolutely.

Karan Thapar: Many people say that Kamal Nath as minister is very keen to open the retail sector both to FDI and to large Indian domestic corporate houses. But Sonia Gandhi and the Prime Minister are a lot more cautious. Are the two of you operating on different wavelengths?

Kamal Nath: Not at all. I’ve always said and I maintain that no FDI in retail should dislocate the small retailer.

Karan Thapar: It should be incremental?

Kamal Nath: It should be incremental it should create more jobs…

Karan Thapar: But are you pushing for it at a faster pace than, say, Sonia Gandhi and PM want it to be?

Kamal Nath: I don’t think so because we have not opened it up. And where is the question of large and small? My ministry is not concerned with it. It’s the Ministry of Consumer Affairs.

Karan Thapar: So, there are no differences either in principle or in practice between you, Sonia Gandhi and the PM?

Kamal Nath: Not at all. Absolutely not

Karan Thapar: None whatsoever?

Kamal Nath: No. Because none have been opened up.

Karan Thapar: In which case, let’s look for a moment what the study you have commissioned and let’s begin by talking about it in terms of how it would affect that large corporate houses. Many people believe that the study could suggest that the entry of large corporate houses into retail could have a damaging impact, an adverse impact, on small retailers. If that were to be the case, would you move to shut down the Reliance outlets that have just opened up?

Kamal Nath: Well, I don’t believe that can be the case because: 1) We are having 25 million people coming to the middle class. We are having 9.2 pc growth with people coming in with more purchasing power. We need more retail. The question is the additional retail, which the country needs, how will it come? Will it come in the organised sector or will it come in the unorganised sector?

Karan Thapar: So the Reliance outlets that have already started are perfectly safe regardless of what outcome the study throws up?

Kamal Nath: Well, there is space for everybody and that’s why we have commissioned the study because I could be wrong. I am not saying I am right?

Karan Thapar: Let’s pause for a moment. Perhaps more likely is that the study will suggest side-by-side, by pointing out that there could be an adverse impact for small retailers, it might also suggest that the entry of large corporates into retail could have beneficial effect for consumers and suppliers. If you get that sort of split verdict, which half of the findings will you give greater priority to?

Kamal Nath: Well, we’ve got to harmonise this. There has to be a balance and on one hand while we need to ensure the interest of the consumer on the other we have to ensure that it doesn’t lead to such displacement, which causes unemployment.

Karan Thapar: Can I point something out? More Indians are consumers than happen to be small retailers. Why shouldn’t you give preference to the consumer interest rather than to the small lobby of small retailers?

Kamal Nath: Well I think consumer has many choices. But the retailer may not have other choice. A consumer can still get his stuff, whether he gets it from the big or the small one.

Karan Thapar: So you have to be politically careful.

Kamal Nath: It’s not about being politically careful. You have to see that at the end of the day it’s incremental.

Karan Thapar: What about then the impact of FDI in retail? Do you believe that the impact of FDI would be both qualitatively and quantitatively different to the impact of large, domestic corporate houses?

Kamal Nath: I don’t think it’s ever a question of FDI in retail. It’s always a question of big versus small…

Karan Thapar: Can I interrupt? The reason why people make a distinction is because they say look at Wal Mart. It has a turnover of 250 billion it has profits of 10 billion a year. It has 15 times larger than Reliance which is why Kishore Biyani, the Managing Director of the Future Group says, and I quote, “In terms of size, Wal Mart is bigger than the total consumption in India. Once it is able to bring its own equity, it can manipulate the markets on its terms and conditions.’ Does that sort of fear worry you?

Kamal Nath: Well, Wal Mart is of course very large. We have not allowed them in retail…

Karan Thapar: …as yet. And is this the argument for putting them off forever or is it just being careful?

Kamal Nath: I have always said that if FDI in retail, which I believe, will upset the small retailers, we need to strengthen the small retailer. That’s why I said if they want to come in, they should go to the backend. They should invest in packaging, technology…

Karan Thapar: As Bharti is bringing them in?

Kamal Nath: I do not know because Bharti has not filed an application as yet.

Karan Thapar: No, but as per the press reports, they are coming in at the backend, not coming in at the front end. They are not going to be involved in retail they will be involved in cash-and-carry and wholesale.

Kamal Nath: If Wal Mart supplies to every retailer good food products - 40 per cent of which rot - and put up a cold chain, packaging, preservation and supply to every retailer, it strengthens my retailer.

Karan Thapar: Let me point out another thing. Business Line, in April 2005, quoted a series of surveys which suggested that if international retailers were to control 20 per cent of the Indian retail market, eight million jobs could be lost. Now some people say that’s a serious concern, others say ‘where do those facts come from, what are the based upon, they are cooked up.’

What’s your view - do you take them seriously or do you say those statistics are cooked up?

Kamal Nath: I believe that there is going to be dislocation, but whether it is eight million or not, I can’t say and I don’t know what Business Line says. But to me it appears that entry of these players is going to close down because their ability to take a loss and stock is much more than the small retailer. And if they want to put their money in, I want them to put their money where it strengthens my small retailer.

Karan Thapar: So are you saying then, that in fact there will be dislocation but despite that we must be open-minded about FDI because we need it, or are you saying that dislocation must put us off letting FDI in?

Kamal Nath: That the possible dislocation which can occur leads me to think that they must put their money where we need it. They must bring their technology where we need it and that’s the backend.

Karan Thapar: So they come in at our terms rather than theirs.

Kamal Nath: Of course, India is a large market…

Karan Thapar: And you are confident you can persuade them to do that?

Kamal Nath: Well, I hope so because the number of small retailers that there are, is the number of customers they have in other countries.

Karan Thapar: So when it comes to FDI as opposed to large corporate houses, the small retailer gets your first preference.

Kamal Nath: The small retailer gets my first preference.

Karan Thapar: Kamal Nath, a pleasure talking to you on Devil’s Advocate.