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May 27, 1998


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The Rediff Budget '98 Interview/Madhur Bajaj

'My concern is not inflation or the fiscal deficit, it is getting into a positive growth cycle'

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Madhur Bajaj, president of Bajaj Auto Ltd, is a soft-spoken person but with firm views. Though not seen in the limelight too often, he has been active in representing the case of Indian industry at various fora.

In an exclusive interview to Amberish K Diwanji, he spoke about his expectations from the forthcoming Budget. Excerpts:

What do you expect from Finance Minister Yashwant Sinha?

I have to recognise that the finance minister, like any other finance minister, has limited options, limited scope of doing things which will kickstart the economy.

Certain pronouncements have already been made. One is with reference to the national agenda of the Bharatiya Janata Party and its allies. Second is with reference to the environment following the nuclear explosions and the economic sanctions that have been imposed upon us. So the finance minister has got a difficult task in a small bag of options that he has.

What are the priorities? What needs to be done?

First, the finance minister has to kickstart the economy. I have mentioned in my various speeches that you have to put the horse before the cart. You have to have infrastructure before development because without the former, you cannot have the latter. Therefore, the first priority would be to see conditions created whereby investments would come in, both domestic and foreign, into the infrastructure sector.

Recently, at a function in Aurangabad, Maharashtra, Rebecca Mark, CEO, Enron, spoke of the difficulties she had with the company's Dabhol Power project in southwest Maharashtra.

One government had cleared the project; another government took office and stopped the project before finally clearing it with some minor modifications. In all, it took her three years before the project was back in the reckoning. I complimented her for her grit, for sticking by her project. And when I asked her about it, she replied that she had implicit faith in India, in the Indian people, market and the government.

Later, during dinner, I privately asked her on how was she able to convince her board back in the United States. She replied, 'They had implicit faith in me and I had implicit faith in India.'

The point I am trying to make is that we have to create an environment whereby power and infrastructure projects can take off in the fast track. The fast-track projects have not really taken off. This is because certain rules and regulatory mechanisms are not in place. The attractiveness of the projects is uncertain. Therefore, people hesitate because not only do these projects entail very, very high investments, but also have long gestation periods. Because of this, people want to be clear about the long-term viability of a project. No one wants another Enron, because not many may have Enron's stamina.

Political instability is another factor that went against the country's economy. I do hope that India reaches a position whereby even if there is a political change, economics stays on course and business carries on.

Many times, it is the small things of the T's not being crossed and I's not being dotted that makes the difference. I hope that the finance minister makes it possible, encourages, and gives the right signals so that our infrastructure gets started. Other things will follow. Once you have the infrastructure in place, there are other triggering mechanisms that make the economy move up.

Do you think the government will raise taxes to garner more revenue?

I do not think the finance minister will tinker too much with the tax rate, even after the nuclear blasts. John F Kennedy had once said, 'I want more taxes, and so I am lowering the tax rate.'

I do not believe that the finance minister will lower the tax rate, but I think he will not raise it either because to do so will further dampen efforts to revive the economy. There are certain utterances made by him which make me, at least, believe, that he will not tamper with the tax rate.

He will limit himself to correcting some flaws, especially in excise duties. He might bring in a tough regime of anti-dumping laws, which is very much required. He will correct the anomalies in the capital goods industries where the tax structure is such that the Indian industry is at a disadvantage compared to the foreign companies.

Of course, I do hope that the monsoons are normal. One should not expect too much, and an 11th good monsoon in a row might just miss us. There are some worries that this might not happen, but this is something that the finance minister can do nothing about. So let us just hope that it will be normal.

How can the government raise revenue?

I think the government will have to implement certain measures that were announced by the previous finance minister. One of them is divestment of the public sector shares. And here the government can get a good price if it is willing to sell 51 per cent.

A person is willing to pay more if he can get ownership and management control of the company rather than just buying shares in a company. The government should govern and not be in the business of business.

The government should not worry about the fact that it is selling precious family jewels because, if at all they feel that way, it is selling them to family members. To that extent, if the government is serious, it can get over Rs 50 billion, which is a good source of revenue.

There are other measures also. I hear that the finance minister is going to tinker with the insurance sector also. To what extent, I do not know. But it is another source of funds, especially of the large and long-term pension funds that will be very useful in the infrastructure sector.

Are you worried about higher inflation or a larger fiscal deficit?

I am not too concerned about inflation or fiscal deficit going a little too high. What is important is starting the right growth cycle. We are right now in a negative spiral. But if good infrastructure is created, it would help the steel and cement industries, and this in turn would have a ripple effect across the economy, reviving it. Very often, what appears negative initially actually turns positive later on and vice-versa.

For instance, take taxes. If you want more revenue through taxes, then don't increase the rate because that will have the opposite effect. Similarly, if industry sentiments are weak, then we will not be able to kickstart the economy and get into a positive business cycle, which is the need of the hour.

The measures you have mentioned might be difficult to implement politically, especially in light of the fragile nature of the coalition government. Do you think Sinha will be available to go ahead with his plans?

Sinha has to convince his colleagues that it is a question of survival, and survival is directly correlated to performance. If he doesn't give the right signals and doesn't revive the economy, this government will collapse anyway. Therefore, rather than listening to the many things he should not be listening to, or to political suggestions, he should convince them.

Today, good economics is good politics, and that is the message he has to give his colleagues and point out that bad economics is necessarily bad politics. I think that this message is not too difficult because politicians are seeing, not just at the Centre but also in the states. That non-performing governments do not last.

Do you think the the swadeshi angle will come in if the government tries to open the economy?

The finance minister has beautifully described what swadeshi means. He has said that swadeshi does not mean that we don't want foreign investment. It means, 'What is in our national interest, we shall do.' It means to me that we do need foreign funds because we do not have sufficient funds ourselves. But we need it in infrastructure, just as we need foreign technology for our export-oriented units. The finance minister should make it clear in which all sectors foreign investment is welcome.

From our meetings with foreign delegates, we in industry have realised that the foreigners are not too bothered by any restrictions that we may place in certain consumer sectors. They are only interested in their own sector. I feel certain that whatever may have happened, more foreign investment will be coming in.

Last year's Budget was hailed as a dream budget but it went awry. How can we avoid a repeat?

Last year's Budget was good, but its implementation was bad. What is different this time is that we have a prime minister who is respected by all political parties. Moreover, the Opposition parties have stated that they will support good policies. I believe that, after the nuclear explosions, the prime minister has been strengthened and will be able to get the implementation going. He has seized the initiative. Also, I think people have recognised the reality of the situation and would allow the implementation to take place.

The problem is the bureaucratic mindset being a hurdle. The prime minister's statement that, if a project application does not receive a reply within 60 days, then it must be considered sanctioned is an attempt to overcome this bureaucratic roadblock. So I think the government will simplify things, make things happen, it is pro-active and not reactive, and ensure that the bureaucracy is not a hurdle. All this will push industry towards growth.

This time, I think implementation of the Budget will be better, though of course, it won't be 100 per cent. I wish Sinha the best of luck, and I am quite hopeful that this Budget will help kickstart the economy.

As president of Bajaj Auto Ltd, the country's largest manufacturer of scooters, have you made any suggestions to the finance minister?

Since the scooter is today the common man's vehicle, we have requested a reduction in excise duties for scooters in the next Budget. The three-wheelers are today the common man's taxi and we hope that the government tinkers a little bit, not too much, so that the scooters and three-wheelers become more affordable for the common man. Either the government improves the public transport system throughout the country or makes scooters cheaper.

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