'Time not ripe for removing stimulus'

With export decline getting arrested, commerce and industry minister Anand Sharma is now setting his sights higher. In an interview with ET NOW, he explained his vision for rapid economic growth, poverty alleviation, food production, FDI policy and the role of SEZs in the country’s export growth. Excerpts:

Has the Indian economy recovered from the impact of global slowdown?

The slowdown was universal, but not uniform. India started feeling the impact from October 2008. The export sector was among the first to be affected and the negative growth in exports peaked to around 40% in May 2009. There has been a turnaround due to a number of policy initiatives: the stimulus packages, Budget 2009 and the new foreign trade policy. My major concern is labour-intensive sectors like handicrafts and I feel that recovery is not complete yet.

India’s share of global exports is less than 2% and we should close the gap by the middle of 2011 and the aim thereafter is to achieve 25% growth in exports every year. We should double India’s trade by 2010 in terms of volume and by 2020 in terms of India’s share in global trade. The negative growth in exports tapered off in October 2009 to 6% and then we saw 18% growth in November 2009. We are not getting complacent, we know that low base effect has played a role in getting to the positive territory.

Even in December 2009, I hope the growth in exports will be positive. Seen in the context of the global export contraction of 9%, we have tackled the slowdown bravely. If major governments across the globe had not acted in time, in a coordinated manner, the recession could have turned into a depression.

What will be the right time to wind down the stimulus measures?

Recovery so far has been stimulus-led and stimulus-fed. We will end 2009-10 with a GDP of 7.5%, if not more. Industrial growth is in double digits and the core sector is doing well. Domestic demand has played a role in the recovery and generation of jobs as well as income. Our banks did not need any recapitalisation and India’s stimulus has worked the best. Savings rate has grown and that has provided a solid base. We need high growth over a sustained period to bring millions out of poverty. Therefore, we have to be pragmatic and realistic in our approach.

Even if we have done well, we need high level of growth to sustain the momentum, create infrastructure and generate jobs. We have to sustain high growth for at least two decades. Interest subvention and easier availability of credit should continue. Due to high cost of capital, Indian industry was always at a disadvantage. I know that FM has his concerns. Being a seasoned leader, he is well apprised. We would not have growth without the stimulus measures. A few months of good show in the run-up to the Budget should not lead to steps that will hurt us in the long run.

What steps do you have in mind for improving the investment climate?

We have an investment-friendly regime and a regulatory framework to address grievances. India has been ranked as the second most-sought-after investment destination in a survey done in Japan. Previous studies had put India behind China and the US, but the new study places India ahead of the US. Our investment regime provides stability and predictability, but there are state-specific problems.

We have set up a core committee to bring about a uniform regime across the country and the panel’s report should be in by March. We are also expanding e-governance and promoting the country through Invest India. Investment is safe in India, returns are good and foreign investors get a fair deal. Now we are in the process of bringing out a composite document containing the FDI policy for all sectors, replacing the 177 press notes that govern the FDI norms now.

Should India venture into Africa for production of food?

We should look at partnerships between private sector in India and Africa. The partnership could be extended to the government level as well and should be a mutually-beneficial one. The African countries concerned should be in a position to enhance their production and meet domestic demand, while the surplus can be supplied to India. Barring pulses and edible oils, we are not short of food except times when vagaries of nature affect production. However, it’s time we launched a second green revolution and meet our growing demand domestically. Strictly speaking, it is not my domain, but we should reduce our post-harvest losses.

Should we allow FDI in retail?

FDI is permitted in cash-and-carry trade, up to the wholesale point. And corporates are allowed to invest in retail. That should take care of the backend. Once the retailers buy directly from farmers, both consumers as well as the producers will benefit. I don’t think the time has come for us to review the FDI policy. After infrastructure and energy, I consider food processing to be one of the important segments that need investment promotion and FDI is already allowed in that segment.

Are you looking at a review of the policy for FDI through holding companies?

Policies are dynamic, but there is no review now. We are only putting together all the existing policies in a single, composite document. In the case of FDI through holding companies, the new policy is clear. It has been formulated by an empowered group of ministers and approved by the Cabinet.

What role will SEZs play in your long-term export promotion plans?

SEZs are doing well and exports from this segment were around Rs 1 lakh crore during 2008-09. I expect exports from this segment to virtually double this fiscal year. SEZs should also bring in new technology and infrastructure upgradation. I have said that incentives available to SEZs should continue. We are now planning to set up dedicated investment and manufacturing zones that will focus on the manufacturing sector. The share of manufacturing in our GDP should go up to 25% as compared to 16% now. We will identify partner-states that will host these zones. The policy is under discussion and the concept will be finalised soon.