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Updated: June 9, 2012 18:09 IST

Things in India need to be in black and white

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Deepak Parekh
Deepak Parekh

FDI is the only source that can mitigate the country's current account deficit

The economy is going through a rough patch. Growth has slowed dramatically after a tight-fisted monetary policy for nearly two years dented consumer spending, while delays in approvals held up several large projects and hurt productive investments.

New Delhi's penchant for populism and inability to push the much-needed economic reforms are now coming home to roost. With trade and current account deficits ballooning to multi-year highs, the rupee is under enormous strain having plunged to record lows for days together.

Finance Minister Pranab Mukherjee and other policy-makers blame global factors, especially the Greek debt crisis, for India's economic problems. However, it would be foolhardy to ignore that many of the issues hurting India are self-inflicted, or domestic factors. In an interview with Oommen A. Ninan, Deepak S. Parekh, a management guru and Chairman of Housing Development Finance Corporation whose sage advice is often sought by top honchos and the government, says India's political class needs to pull up its socks. Excerpts:

You have been a trouble-shooter in the financial world. The great job you did to rescue scandal-tainted Satyam was appreciated by all. The economy is in big trouble. The current account deficit has jumped to the most since 1980 and the rupee plunged to record lows. What are the problems and what needs to be done to retrieve the situation?

India has a problem. A holistic approach will have to be taken. We have to convince the political bosses of numerous hues how today's situation is hurting our country. It is hurting our youth and it is hurting our future.

The government has not been able to push reforms because of ideological differences between coalition partners. The cohesiveness required in the ruling party, which was there in UPA-I, has deteriorated in the last few years, particularly in the last one year. While one coalition partner opposes increase in FDI (foreign direct investment), another opposes the increase in petroleum product prices.

We have got to get our act together. FDI is the only source that can mitigate the country's current account deficit. Without capital inflows, the rupee is going to collapse and inflation is going to increase.

We can't boast that India is having a demographic dividend. Half of our population is under the age of 25, and 60 per cent is under the age of 30. Where are they going to work, if you don't set up manufacturing units? Who is going to give them job? Educated youth with no employment is the worst thing that can happen in any country.

It is the start of a disaster. It is the start of a civil strife. We must set aside differences, individual whims and fancies of political parties and ensure we don't go down that path. Politicians must recognise that something needs to be done in the interest of the country and the economy and the future of our youth.

Otherwise, if we continue like this, we will go downhill faster in the next two years.

Foreign funds had poured about $9 billion into stocks and debts between January 1 and March 15; the budget was a huge disappointment — it had no reforms and came up with controversial tax proposals which spooked business sentiment, particularly foreign investment. What went wrong? What are your thoughts, especially on FDI?

Foreign investors have lost confidence due to some of the provisions introduced by the government in the budget. The chairman of a big sovereign fund said, “We are not going to go away. We are always interested in India. But till you put your house in order we are not going to invest.”

Another chairman said: “It is not possible to work with the present government and it is not possible to work with the difficult tax regime in the country. So, ‘Sayonara' to India for the moment.”

There is no justification for the government to hold up plans to allow foreign carriers to invest up to 49 per cent in domestic airlines. We need to open up the aviation sector, which is bleeding and dying.

Why is the government so sentimental, so emotional? It is a sector that needs foreign capital, and majority ownership would still be in Indian hands. There is a major problem with the industry and believe me even other airlines will be forced to close down. I know how precarious their positions are; many are delaying payments to staff as well as for purchases and to airport authorities.

The government must encourage FDI, which is more permanent capital than fickle foreign portfolio inflows.

But Pranab Mukherjee said in the Parliament that no one needs to think that India is a tax haven?

No one is saying that India needs to be a tax haven, but things in India need to be in black and white. Everything today seems to be in grey.

There is uncertainty about how laws will be interpreted; there is uncertainty when you start a project whether you'll get all approvals. Foreign investors think it is difficult to do business in India; even Indian entrepreneurs think so.

In fact, the top 10 entrepreneurs have said that it is easier to buy a company abroad and work. No one knows why government approvals take such a long time; and whether they will be given at all, particularly in sectors such as energy, mining, coal and cement. The growth last year has suffered in these areas. Energy is critical to achieve higher growth.

What are your thoughts on reforms and growth?

We can't just do nothing and expect growth will happen. We need agriculture reforms to begin with.

Unless we increase our foodgrain productivity significantly and the efficiency of the distribution system is improved, we will not be able to feed the Indian population.

In agriculture, the cost of distribution in India is the highest. I agree we are a large country and there are pockets where foodgrains are grown. The global average of the distribution cost is one-third of the final price, while the farmer gets 66 per cent. In India, this is reversed because of middle-men, vested interest, wastage and inadequate warehousing facilities.

We did a survey in rural India, while health and education for their family are the top two concerns, the other issue was storage and not housing or anything, We have no place to keep our foodgrains. Until the Food Corporation of India man comes, we have no storage place and we have to keep it outside.

So storage and distribution are the main issues. Lack of proper warehouses is a huge concern.

The National Rural Employment Guarantee Scheme is a good programme. We don't have a national social security system, so the government is giving some money in a small amount to unemployed people. Remember recipients use 90 per cent of the money they get to buy foodgrains for feeding their family. So the demand for food goes up significantly.

Even for people with larger disposable income, the first priority is to provide proper food for the family. As consumption increases, inefficiency in logistics and distribution are exposed. This is fueling inflation and will not come down unless production and infrastructure are improved.

I agree with the comments of Swaminathan Aiyer above. There is no dearth
of money to be invested in agriculture warehousing and distribution. Get
all the black money from tax havens belonging to crook Indians to
stabilize the prices. The problem is with our corrupt politicians who
are working for the Italian Boss as her humble servants.These old
politicians need to be kicked out as their performance is zero.

from:  kapoor
Posted on: May 31, 2012 at 14:29 IST

It is inexplicable why in a federal structure building up consensus on critical reforms should take such a long time. Do not the constituents of the federal structure have welfare of the nation in their hearts. All should rise out of considerations of vote bank politics and unitedly work towards fast tracking reforms. The Prime Minister should take the lead and call for a National Development Council meeting and iron out all differences. This should be done on a war footing. Deepak Parikh is right in pointing out the perils of not being able to provide employment opportunities to the educated unemployed which would lead to social strife. It is a wake up call and the country cannot be seen moving with leaden feet. Dynamism should come from the top and rescue the country from the road to disaster. All is not lost as yet. Development in the recent past has given way to rising aspirations and the country should be equal to the task of building India into a modern developed country.

from:  R.Vijaykumar
Posted on: May 30, 2012 at 05:59 IST

The solutions of deepak Parek are is asking India to bring fdi and make indian People servents of foriegners, uallow them to use our water land, market and pollutte the atmoshere and take proffits keeping their countries intact. People should understand the same FDIthat is going to give a short time fillip will create vaccume one day to destroy the ruppee. We are in the hands of other countries today. They are dictating us what to do. Rupee comming down is nothing but twisting the Indian hands to agree for FDIs in retail as well agree to Nuclear Power plants who are not tested. Politicians should know that Indira Gandhi used to dictate to these multinationals. The day Manmohan has taken over as FM the rupee from 17 it has 34 per dollor. the moment he became PM the dollor from 44 came to 56. Is this goog governance I am sorry the similar countries like India did not loose their currency valu like India. There better methods but I cannot write the methods here

from:  B. P. Kamalkumar
Posted on: May 29, 2012 at 20:15 IST

Very succinct and forthright commentary on the economic conditions of today’s

Mr. Parekh’s in his characteristic way got straight to the core issues ailing our

According to me, the current situation can be attributed to only two reasons:

1) Incompetence (to understand the issues) of the decision/policy makers


2) Wrong intentions/vested interests or lack of courage to take hard (but right)
My view is that it is a combination of both!
Corporate India does have a lot people who know & understand what needs to be
done; they just need to have fearlessness like Mr. Parekh to be selfless and speak
up to positively influence the system.

from:  Prashant A. Bhonsle
Posted on: May 29, 2012 at 12:39 IST

We need a Finance Minister who should be given a free hand from politics and the so-called coalition Dharmas.

There is none other than Mr. Deepak Parekh who has been entrusted with the job of turning around non-performing companies. Now, it is time for turning around non-performing Government/Economy.

If Mr. Deepak Parekh is made Finance Minister and allowed to function without interference from politicians, definitely he will make wonders.

But will it happen in our country??

from:  Partha
Posted on: May 29, 2012 at 11:40 IST

Let the govt take these advices to its heart, so as to witness a SHINING INDIA once again.Because of not hearing such advices from the intellectual from time to time,things have come to such a pass,where no tangible progress in all spheres could be seen,even after passing of many years since independence,India still remains to be a poor country.

from:  Anthony Rao
Posted on: May 29, 2012 at 00:26 IST

Agree with everything except one. Why do we need FDI ?? Instead of
trying to balance the current account deficit with FDI, should not the
government try to convert the current account deficit into surplus ??
Why do we import more and export less ? If govt can increase exports
then the current account deficit will no longer exist and rupee will
not fall. And if govt wants credit for investment, it should get back
the black money instead of bringing FDI. Why should foreigners profit
from our markets when we do not need investment from them. We already
have lot of money to invest, the only thing is that it lies in foreign

from:  gshah
Posted on: May 28, 2012 at 22:50 IST

Everybody contributes to current state the country is in. Not just politicians or businessmen, even aam admi is responsible equally. No blame game.

from:  Madhu
Posted on: May 28, 2012 at 21:52 IST

yes corruption must be one of thing that should be mitigate ?
otherwise why should indian investor invest outside.

from:  anand
Posted on: May 28, 2012 at 21:44 IST

As Sir Parekh said our countries poor financial condition is been self
inflicted , our ministers are simply drifting their part of mistake
towards somebody proving themselves innocent and been annoyed of
something. It's obvious and true that this is a country where
political issues which relates to public welfare and towards public worthiness been calculated in the sense of their commission as per the
G.O passing.

And it's true that FDI in several sectors has to be bring on to
strengthen our countries financial condition . But because of silly
and poor politics game playing happening every where in INDIA has to
be the serious issue towards the growth of this nation in different
dimensions. I believe government has to make rules which tends to be
followed on and must show it's austerity towards the policies by the
policy makers and government. This is country where politics is been
played in many facets and government has be make rules which maintain
austerity to it;s best level.

from:  Sri Krishna Chaitanya
Posted on: May 28, 2012 at 20:27 IST

I dont understand how an interview can be published and that too by "The
Hindu" without attributing the different opinions to the person that
made them in the interview. I am afraid that it did not make a good
read. Expecting the same old standards of publication from the newspaper
I have been reading for decades. Hope the paper will not disappoint.

from:  Sankaranarayanan Balachandran
Posted on: May 28, 2012 at 19:38 IST

I like the way My Iyer has put it. People simple reap what they has sowed. FDI cannot be just the temporary solution, while people at the top work "pro-actively" for a permanent solution. i.e. in my opinion make it self sustainable. Ways of doing it, I leave it to the experts to figure it out.

But, one thing is for sure...corruption is breaking our country into pieces.
Sathyameva Jayathe!

from:  Sundeep
Posted on: May 28, 2012 at 18:18 IST

It is simple democracy. People vote for the govt and they reap the
benefits or bear the pain. We have voted for dysfunctional govt and now
Only time will tell if India will become Zimbabwe and Nigeria.....
examples of resource rich countries where only a few benefit rest or on
the streets looting each other.
But historically India come out of it so I am still hoping for the best.

from:  swaminathan iyer
Posted on: May 28, 2012 at 15:56 IST

Easy said. Why don't big fat Indians who have made big fat money in India invest in warehouses and distribution in India?

from:  Hilary Pais
Posted on: May 28, 2012 at 13:28 IST

Great Suggestion.

If all of us were reinvent the wheel then there would be a waste of

Wouldn't it be better to allow people interested in these business to
move faster by enabling timely permission's. The entire problem is not
lack of funds or interested people but govt apathy towards India
entrepreneurs/ industry and also not allowing FDI is non strategic
areas that support farm productivity etc
The reason why Indian Entrepreneurs are investing abroad is because
they are at least sure of what returns they can expect. In India rules
change just at the fancy of the person announcing the change which
creates huge uncertainty. One even is not sure if the project one is
starting will ever take off as rules may change rendering the project

I am not sure even people like Mr. Parekh would find it easy to
take it forward. So it is all about lack of will / encouragement on
the part of the Indian leadership.

from:  Jimit Shah
Posted on: May 28, 2012 at 12:32 IST

For storing food grains we should import steel grain silos from Australia.

from:  Dr.Deepak Jacob
Posted on: May 28, 2012 at 12:18 IST

"when the public at Monarchy's demamd democracy, Indian's are craving for a rigid millitary rule". This is the only option left. FDI would generate employment. People who oppose pretending they defend aam adhmi, are no less than crooks.

from:  sk
Posted on: May 28, 2012 at 11:39 IST

Fdi is a solution to Indian economy ?beside we have internal problems like hiking petrol prices sort of that inflation also hiking we are getting petrol a barrel 35 dollar from iran & saudi .,we add taxes to that and states wise citywise country wise we hav funds available in black money mode where our politician invested in Swiss banks., and In indias growth base taxation systems are too good we colecting taxes and the inflows are robing our topline polict verdicts., Where the matter of Fdi On what base foregin investors come to india ? they have many options why their hard earned money invest to a country where internal problems canot be resolved and Charting loses., in Retail we expected Fdi what happend to the file praposal our politicians are kiiled the praposal because we dont have a stabile goverment now people talking about Fdi in Aviation Where we have bunch of companys make record loses Fdi are manipulated mad"s they invest their money to loss making companys think about ..

Posted on: May 28, 2012 at 11:20 IST

Mr. Deepak Parekh has solutions to the problems the country is facing.. Sir what stops you from acting on ur own solutions..
Eg.. Storage of Food Grains - Warehousing Facilties,Logistics,Food Procesing , R&D in Agriculture - Automation etc..
What is stoping you from creating businessess when there are so many opportunities.
You have money , powerful friends - Businessman & Ploticians..
What is Stoping you....

from:  Jay
Posted on: May 28, 2012 at 10:20 IST

I agree with evrything that Mr Parekh has said but I would also add that corruption has to be stopped. I know several US businessmen who would not come to India because of the degree of corruption there.

from:  Ramkishin Samat
Posted on: May 28, 2012 at 09:22 IST

Glad to read this interview. As long as the political parties in the coalition are more interested in self preservation and populist themes, it will be difficult to have macro-economic policies aligned for the enhancement of people's quality of life.

from:  Van Ekambaram
Posted on: May 28, 2012 at 04:24 IST

This is all elementary stuff. Let rupee trade freely and within one month you will see the real story. India has no need to have Air India.
Fix the railways instead of subsidy for Air India. I can give thousand such examples.

from:  sharad
Posted on: May 28, 2012 at 01:36 IST

What Deepak Parekhbhai says is correct. He know a lot. During the Radia affair he was saying don't disturb India story because India must always be shining. We are global power. Deepakbhai knows all the big businessman of India and the world so surely they tell him what is wrong in India and he can tell us. Politicos must fix it.

from:  Sumit Patel
Posted on: May 27, 2012 at 23:15 IST

Mr. Deepak Parekh talking about integrity is hilarious!! I wonder if this is a paid news or an attempt to burnish his and HDFC Bank's image. Anybody who has banked with HDFC will vouch for my statement. Yesterday TOI published his name in India's to 20 CEO's list. It actually should have been the corporate-raider's list. By the way, I thought FDI is a component of Capital Accounts since they are long term. Good to know 'Management Guru' Deepak Parekh chooses to classify them in Current Account. May be he's rewriting macro-economics!

from:  Sayan
Posted on: May 27, 2012 at 23:11 IST
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