74th Annual General Meeting
December 5-6, 2001, New Delhi

Welcome address by Mr. Chirayu R Amin, President, FICCI

Hon'ble Finance Minister, Shri Yashwant Sinhaji
Shri Rajendra S Lodha
Dr Amit Mitra
Your Excellencies
Distinguished delegates,
Ladies & Gentlemen,

As I rise to welcome you Mr Finance Minister, I am deeply aware of this rare opportunity I have today. Here, at the Inaugural Session of the 74th Annual General Meeting of FICCI, we have the cream of India's business leaders, senior officials of the Government, leaders of our civil society and senior members of the diplomatic core whose presence in a rapidly globalising world adds special meaning. As we enter our 75th year, the Platinum Jubilee year of FICCI, I am conscious of the fact that the Federation, over the years, has articulated the views of Indian business. In so doing, it has always kept in view the interest of the country as a whole, maintaining a responsible balance.

Sir, as the Finance Minister of this country you are facing a task which none of your predecessors had to possibly face. We are meeting under the shadows of cataclysmic developments, of deep changes and almost a systemic shift in democracies all over the world after September 11th. The Global fight against terrorism will have profound implications for the over all economic security of nations. The concept of security itself has undergone a fundamental change. It is no longer synonymous with military strength or force levels. It now focuses on national economic strength. It is in this context that we in FICCI thought it fit to examine issues relating to, India's economic security - issues which can undermine and threaten our nation. We seek to explore strategic responses to the new challenge of our times.

We feel assured that in these trying times, we have a leader like you who truly cares, whose integrity is beyond question and whose determination to change and reform is indomitable.

Sir, I do believe that five critical areas of our economic activities need to be carefully protected and made secure. To our mind, these are trade security, macro-economic and financial stability, energy security, infrastructure facilities, protecting and deepening our telecommunications network and nurturing our information technology industries in this brave and new world.

May I dwell on these five issues for a moment?

Sir, though India's share in world trade currently stands at a mere 0.7%, our economy today is more open than ever. In fact, the share of international mercantile trade in GDP has risen from 14.6% in 1991 to 21.8% in 2000-2001. Taking into account the invisibles, nearly one third of the national economy today is closely linked to international trade and investment flows. Yet, the global economy today is suffering from a deep slow down while recession in the US, our largest trading partner, is now official. Thus, we need to deeply introspect and devise actions to keep secure our global trade and investment trajectory. In Doha, India successfully fought to secure the country's interests, in fact the interests of the developing world. Now we have to prepare ourselves fully for the negotiations in WTO starting on January 31st. We have to develop new strategies and forge new alliances with nations across the spectrum of development, each carefully defined by specific and inalienable interests.

Sir, as you emphasise time and again that financial and macro-economic stability are the key to over all development. Through successive budgets you have attempted to restore macro-economic balances and limit budgetary deficits. One of the major reasons for run away deficit has been the large interest burden on Government loans. With the softening interest rates on Government papers for last one year, it should be possible to contain the interest out go on fresh public debt. This year you could bring about major corrections in this domain which will secure our future. Cutting down the size of government unfortunately still remains in a state of struggle.

The sinews of the economy are kept moving through use of energy. India's huge dependence on oil imports makes energy security a serious challenge to the country. We import not less than 70% of our oil consumption. Domestic production has remained virtually stagnant. The share of oil and petroleum imports in our import basket has risen to 31% in 2000-01 from 15% in 1998-99. The threat to oil security comes from volatility in prices and supply disruptions. In FICCI we believe that India must develop a critical oil reserve and make long-term investment by way of equity oil for containing supply disruption and wild fluctuations in prices.

Today, we are faced with daunting tasks of increasing investment in the infrastructure and improving the performance of the installed infrastructure facilities. Take the case of power alone. Power costs anywhere between 10 to 12 cents in India against an average 5 cents abroad, keep us shackled. How can the nation expect its energy intensive industry like steel, aluminum, chemicals to compete against imports with these costs when duty levels are also heading South. Resultant closures and unemployment can threaten our polity tomorrow.

Sir, in the wake of the September 11 attacks, cyber warfare and cyber terrorism have become real threats. Hacking of our telecom and IT networks can destroy our financial systems, tele-banking networks, our capital market, transportation networks and even medical systems. It is important to secure our communications and IT networks from such attacks. We need fresh strategies to tackle these new dangers.

Sir, if these are the overarching issues for India's economic security in the medium to long-term, India's industry is going through severe hardship now. The index of industrial production is falling. Over all growth in April-September 2001 is down to 2.3%. We desperately need to break out of this vicious down-ward spiral.

FICCI has conducted a series of surveys trying to fathom the reasons for the relentless slide. The single factor that emerges is : hardly any units have any major plans for investment. Faced with a liberal import regime and frequent cases of dumping, profitability for Indian industry has gone down. The latest figures indicate growth in profit after taxation skidded by -8.4% in the second quarter this year. Even the RBI study on corporate investment indicates a negative trend this year compared to meagre 2.5% rise last year.

Yashwantji, Indian industry is plagued by six major costs, namely:

• cost of power;
  
• transaction costs of doing business - those plethora of rules backed by an army of inspectors still seeking rents;
  
• the cost of labour from inflexibility in our labour market, permeated by crippling labour laws;
  
• the debilitating cost of infrastructure;
  
• falling but still high cost of borrowing; and
  
• innumerable taxes on domestic producers and these, not borne by imports.
  

Allow me to briefly touch upon these.

When energy costs are two and a half and three times higher than our counterparts abroad, how do we fend off competition with imports.

You would agree that transaction costs continue to be prohibitively high in India - as much as 20% in some instances. What is our concrete strategy to deal with inspector raj, Sir?

Despite the talk of India having lower wages the over all wage costs tend to be much higher because of industry's incapacity to right size labour force in response to fluctuating market demand. The much awaited amendments to Contract Labour Act are yet to come. The changes in the labour legislation has not yet been given effect. Even the labour reforms suggested in your last budget speech could not be put into effect due to political counter pressures and vested interests.

I need to say little on infrastructure bottlenecks and the costs thereof.

And, in spite of major taxation reforms, the cumulative incidence of tax on manufacturing industry still remains. While your reforms of central sales tax have brought about a fundamental change, the other incongruities -like state level imposts - remain.

While interest rates have shown signs of softening and prime lending rates have been revised downwards, the actual lending rates the industry has to pay still remains way above international benchmark.

It is in this context that FICCI has always argued for calibrated globalisation - we have sought a rate of globalization which correlates closely to the improvements brought about in the above six domestic disabilities, through more reforms and more internal liberalisation.

Sir, may I make a few humble suggestions. The Indian economy now badly calls for pump priming - the need for 'delta G' as Keynesian's call it, to set in motion the multiplier effect - 'G' for government investment in the infrastructure sector. Indeed, a number of ambitious infrastructure projects announced have not been implemented yet. We seek your input on this matter.

Secondly, after a long period, the stock market is showing signs of revival. This is a silver lining in an otherwise over cast sky. Why not encourage the secondary market with a quick package of disinvestments of a few prominent companies, clearing success stories and the disinvestment proceeds then could be utilised for infrastructure funding.

Thirdly, you had suggested in your budget speech that you will take up implementation of the recommendations of the Expenditure Reforms Committee. This will help in containing some of the costs of the government and bring down deficits.

Fourthly, Sir, you also suggested 100% metering by the power sector by the end of the year. We must achieve this aim sometime early next year. Such a move along with efforts to recover at least user charge for water and other utilities should bring in a new culture where the beneficiary pays for what they use.

Fifthly, massive focus on housing and construction across the nation, rural and urban, through amortized loan packages over longer durations and complementary changes in land laws, tenancy laws, property taxes, stamp duties and foreclosure laws is the need of the hour. We desperately seek an integrated package of reforms to bring about a housing revolution soon.

Sixthly, every effort to strengthen the flow of foreign exchange and domestic spending in the 'invisible' like tourism - a bonanza for employment and growth.

Internal trade has still remained untouched by the process of economic reforms. Plethora of archaic rules and regulations still continue to be operational. These have restricted free movement of goods and commodities within the country apart from restricting the development of this vital sector of our economy.

Lastly, please give a major push to agro-processing and agro-based industries for creation of additional employment opportunities spread through out the country. This should create demand, which will spur fresh investment by the corporate sector. In fact, we seek from you a new green revolution complemented by processing and deepening value addition.

Mr Finance Minister, you are in a position to singularly give direction to the country's economy. If India has to hold its own in the new world order, we have to be strong internally and this will be determined on the strength
of our economy. The fulcrum for the greatest security of the nation is economic security and economic resilience with depth. We seek your vision as to how we can achieve this fundamental imperative.

Thank you,