Centre, states must collaborate for global investment in India: Mukesh Aghi

Mukesh Aghi talks about the recent Lok Sabha elections, expectations from the coming Budget, changes in India's regulatory environment.

Mukesh Aghi, president and chief executive officer of the US-India Strategic Partnership Forum (USISPF), in an interview with Aditi Phadnis in New Delhi, talks about the recent Lok Sabha elections, expectations from the coming Budget, changes in India’s regulatory environment. Edited excerpts.

After the general elections there is now a much stronger Opposition. How do you see this affecting relations between India and the US, especially the investor community?

The elections have sent the message that democracy works, democracy corrects itself. The perception of India going way to the right … that has dissipated.
 

Electing a Prime Minister for a third term signals a sense of stability and a sense of continuity and economic reforms will continue. So, investors are happy about that.
 

 

And when you look at what’s happening in China, India becomes a terrific opportunity from that perspective — not just a derisking supply chain option from China but also India becoming a market opportunity as a $4 trillion economy, and soon to become a $5 trillion economy.
 

But only a small fraction of companies exiting China are choosing to invest in India. Preferred relocation and alternative investment destinations are Vietnam, Malaysia, and even Saudi Arabia. What does India have to do to get that community’s confidence?

We have to convey a message of transparency in policymaking, give reassurances about stability in policymaking, and reach out to investors and understand their needs.
 

Let me give you an example. In the global supply chain, especially manufacturing, goods have to come in semi-finished and, after value addition, have to move out. That efficiency is still not world-class. When your capital goods are stuck in customs for two or three days, you’re losing market opportunity. So we have to bring those standards up.
 

Look at the logistics. India’s logistics is at 20 per cent higher than Chinese logistics. So we have to correct some of these things to compete on a global basis.
 

Manufacturing may not be coming. But we’re seeing more services companies. India now has 1,600 global capability centres. Their exports amount to roughly $121 billion. The number of centres is just going up. They are creating intellectual property in the country itself!
 

You spoke of transparency in policy. Can you cite an example where policy might be opaque, which irritates investors?

You have to have policies that are consistent at the state level also. Often central-government policies do not percolate down to the states. At the end of the day, manufacturing companies will go to states. So there has to be collaboration to make sure policies are consistent and there is a degree of predictability.
 

There are other problems also: Namely regulatory hitches. You had pointed out in order to set up a hotel one needed to get permission from around 100 entities. Is that still an issue?

Oh, very much. Compare setting up a hotel in India to setting up a hotel in Singapore. In Singapore, you probably need 10 permits. In India you need at least 100. And when you go to different states, they have different requirements. So, we have to see how we can streamline this system of permits. If you want manufacturing to come in, the regulatory environment needs to be streamlined.
 

When it comes to investment from the US, India showed a lot of promise in the civil nuclear energy space. Nothing much has happened in that sphere. Land acquisition continues to be a problem. What is your sense of how the government is handling this?

We were hoping that if there was a big majority for the Bharatiya Janata Party, they would look at reforms in land, labour … but with the current scenario that could become challenging. We have to look at the state level.
 

I’ll give you an interesting example. We’re working closely with Apple, and Apple has set up with Foxconn and others manufacturing units in Chennai. They were able to get land. They were able to sort out the labour issues without much difficulty. So, I think firms have to go to the state level and sort things out there …
 

So if states are so important, then why are we talking about the government at the Centre and a possible hobbling of its decision-making power after the Lok Sabha mandate?

You need the central government from a tax-incentive perspective: Production-linked incentive, for instance. So, you need to have the Centre and states to collaborate if they want global investment in India.
 

And this government as it exists today … do you think it is less capable of reaching a consensus with the states?

This government has the experience now to build that consensus in their processes.
 

What are your expectations from the July 23 Budget?

We’re hoping the Budget will be attractive in every aspect: From an incentive perspective, from a tax perspective, and from a regulatory-environment perspective
 

One, streamlined taxation between the Centre and the states: There has to be consistency.
 

Then, look at the PLI (production-linked initiative) schemes. In some cases, they have worked. In some cases, they haven’t. So the question is: How do we make them more attractive for companies to come in? Because you’re now competing with Vietnam, Cambodia, and others. Other countries are not standing still…
 

The government and Indians argue this has to be a two-way street. Indian pharma companies have had a rough time at the hands of US regulators…
 

Trade has to be a two-way street. In the case of the pharma companies, the issue is more standards of the Food and Drug Administration (FDA). It is good for Indian companies if they meet FDA standards because then their products will be trusted not just in the US but in Europe, Africa and other parts of the globe. We’re working with the FDA to help Indian companies work in a smoother manner. We have made some progress. But we still have a long way to go.