What is your view on the current state of Indian industry, especially the manufacturing sector?
The Indian manufacturing sector is undergoing a major slowdown due to lack of demand and over-capacity. It is facing cut-throat competition, both in the domestic as well as the international markets. To face global competition in an import-free regime, the sector requires fresh investments. But it is not in position to invest as much as required.

Do you think the manufacturing sector is at a disadvantage due to the liberalisation process?
India was always strong in manufacturing. Even after liberalisation, the country will largely remain a manufacturing base, unlike Singapore and Hong Kong where trade is the main economic activity. Our manufacturing sector has been able to serve engineering works related to civil and defence sectors.

Indian companies, including HMT, BHEL, Godrej and L&T, have done pioneering work in the atomic energy sector and space programmes. We cannot doubt their capability to face global competition.

The matter for concern, however, is lack of demand. Growth in demand depends on higher economic growth, which requires large investments in infrastructure.

Investment on infrastructure is a general solution to the slowdown. Do you have any specific suggestion for boosting growth in manufacturing?
Investment in power projects alone can help in reviving the manufacturing sector. All the sectors facing a slowdown are directly or indirectly related to power. Lack of demand has badly hit sectors, like cables & wires, electrical machinery, switchgears, transformers, electric motors, capacitors, energy meters, motor starters and power cables. The fate of many other related industries also depends on power projects.

Do you see any chance of power projects taking off during the current year?
I met power minister Suresh Prabhu recently. He is postitive that four-five power projects will take off in 2001. The government has been aware of the fact that GDP growth largely depends on infrastructure development.

Infrastructure development, power sector reforms and expenditure management are the key to achieving 9 per cent GDP growth.

The power sector alone has great potential to attract foreign direct investment (FDI). It has a potential to attract investments worth $5 billion annually for five years. The need of the sector is to have an independent regulatory commission. The current structure of state electricity boards (SEBs) is a major problem being faced by the sector. What is needed is corporatisation of SEBs.

What are your other suggestions for reviving the manufacturing sector?
The government should again introduce the accelerated depreciation scheme for new investments. The scheme, withdrawn in the early 90s, had attracted too much investment. Now, when investments are required, there is need to reintroduce the scheme. The sector requires fresh investments to upgrade facilities at par with global standards. The government should, therefore, introduce sectoral modernisation funds for the sector, similar to the technology upgradation fund scheme (TUF) for the textile industry.

Do you think Indian companies are prepared to face global competition once quantitative restrictions (QRs) are removed?
Indian companies are doing very well except for those sectors where customs duty is zero. The CII, in its pre-budget memorandum, has urged the government to abolish all zero duties except essential wage goods, life saving equipment and a few other critical items. Indian companies can face any competition if there a normal duty structure.

Similarly, a minimum 15 per cent customs duty on capital goods imports for projects financed by international agencies should be applicable.

As per World Bank guidelines, a price preference of 15 per cent or customs duty, whichever is lower, is allowed to domestic bidders. However, with zero customs duty, the price preference would automatically be reduced to zero, affecting the competitiveness of domestic industry.

The price preference is given to offset the additional domestic duties as well as other levies, which domestic industry is subject to vis-a-vis the overseas supplier. Last year, the government had waived customs duty on all goods imported into India for execution of projects approved by the government of India and financed by the United Nations, World Bank and Asian Development Bank.

How do you see the Chinese threat to Indian industry and what, according to you, is the solution?
I do not see Chinese competition as a threat. I am not afraid of China. In fact, I look at China positively. There could be lot of synergy between the two countries as far as trade relations are concerned. As far as allegations of dumping are concerned, steps must be taken against either of the two parties if a case of dumping is established against them.

What is the reason for Chinese products being relatively cheap?
Economies of scale. Chinese products are cheap because they are produced in a mass scale. In India, most products are reserved for the small-scale industries (SSIs), where production cost is quite high. Almost 800 items are reserved under SSIs. De-reservation is a must if we want to compete with cheap imports, specially when quantitative restrictions are being lifted and free imports are being allowed. There is no rationale for restricting domestic players to produce items reserved for SSIs, while foreign companies are allowed to import the same. The policy of reservation in the current economic scenario is suicidal.

After de-reservation, what will happen to millions of people who depend on small industries for their livelihood?
We must encourage the small sector to evolve economies of scale. The CII has a dedicated 10-member team to help the SSI sector to upgrade technology and strengthen marketing efforts. Recently, we arranged a trade fair for SSIs in South Africa. A CII team had visited the US under the leadership of the SSI minister, Vasundhara Raje Schindia, to promote industries. Similar teams went to Taiwan and Mayanmar recently.