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"FDI in core sector not acceptable"

Friday 30 July 2004, by RAJALAKSHMI*T.K.

Interview with M.K. Pandhe, CITU president.

The Left unions have expressed strong reservations about the scaling up of the cap on Foreign Direct Investment (FDI) in core infrastructure areas such as telecommunications and civil aviation. There is also an opinion that several budgetary provisions fail to reflect the United Progressive Alliance’s Common Minimum Programme. The unions feel that more concrete measures could have been spelt out and that the link between rural sector reforms and land reforms was missing in the Budget. M.K. Pandhe, president of the Centre of Indian Trade Unions, points out, in an interview to T.K. Rajalakshmi, the areas the Union Budget could have focussed on. Excerpts:

The Finance Minister said the key to growth was investment and that he wished to enhance investment in all sectors of the economy. But industry circles say investment will suffer owing to certain tax burdens imposed on them. Has the Finance Minister been guided more by the principles of fiscal prudence than by the need for enhanced investment in public sector enterprises? How adequately have these concerns been addressed in the Budget?

First, giving concessions to industry does not automatically enhance investment. This is the experience of the past five years. Therefore, to say that investment grows with more concessions is not correct. Industrialists have been bargaining for more concessions in the name of investment. Why is the rate of growth of production in the United States tardy? It is not even 2 per cent per annum despite the availability of technology and surplus money. A Reserve Bank of India study shows that concessions do not lead to investment. There has been no real burden imposed on industry in Budget 2004. Some turnover tax has been imposed but the incidence is not very high. It works out to Rs.150 per lakh rupees turnover. As soon as any burden comes the industry complains that investment will be affected. Investment has to be socially justified. In many industries, there is large unutilised capacity. A proper investment policy should see to the full utilisation of the production capacity. Investment should lead to employment generation. It is not so now. Today the government is discouraging bank investment and encouraging investment in the share market. That is why bank and provident fund interest rates have been reduced. There should be a proper investment policy, which is not there at the moment. The opposition of industry to the education cess and the turnover tax shows that they have no welfare or social objectives in mind.

A commitment has been made to the restructuring of small-scale industries in terms of raising the ceiling on loans. Do you not think this is a step in the right direction from the point of view of higher employment generation?

On the contrary, this hits the interests of the small-scale sector. The Finance Minister has announced the dereservation of some 85 commodities from the list of small-scale sector. This will kill investment.

There is a proposal to set up a board for the reconstruction of sick PSEs. Surely you welcome this move. But would this address the problem of sick units in its entirety?

It is a positive step but is not adequate. The Finance Minister has allocated Rs.14,000 crores for this purpose. But since industrial sickness is very high, more funds should have been provided. Moreover, employees should also be represented apart from the government and the employer [on the board]. Public sector profits go to the government.

The Left parties have expressed their reservations to the scaling up of FDI in insurance, telecom and civil aviation sectors. But the Finance Minister mentioned that the CMP had declared that FDI would continue to be encouraged and sought particularly in areas such as infrastructure. So basically what has been announced in the Budget is a reiteration of the CMP.

We do not agree with every aspect of the CMP. That is why we have not signed it. We do not accept the encouragement of FDI. If FDI is allowed to increase production capacity, we do not have any problem. We do not object to the entry of new technology. But FDI in the share market and in the manipulation of the market is not a correct thing. Secondly, to invite FDI in the core sector is not acceptable. From the national security point of view, it is a sensitive issue to invite FDI in the telecom sector. Again, why invite FDI in the insurance sector? Foreign companies are not going to make any capital investment. They will use the premium paid. The privatisation of the Airports Authority of India is also unwarranted. The Authority has Rs.2,000 crores of reserve funds and its profit is Rs.500 crores. For the modernisation of the Airports Authority, Rs.4,000 crores is needed. So why privatise it? In four years, they will be able to harness the amount needed for modernisation. The movement of India’s air force is through the airports. So it is not prudent, from the point of view of national security, to privatise the sector. In every airport, the government has allowed 49 per cent foreign equity participation, 25 per cent for the Indian private sector and 26 per cent participation for the government sector. This is actually a violation of the CMP, which says that no profit-making unit will be privatised.

The question of providing 100 mandays of employment is also not clear. Only stating intent is not sufficient. Two crore families are to be given employment. One family gets 100 days of work, which means one worker’s wage will be 60x100. For two crore families this works out to Rs12,000 crores. How does the government plan to generate this amount? It has to have a programme of building infrastructure - construction of dams, village roads, overbridges and schools, among other things. In the CMP, the government agreed to strengthen the public distribution system but not much money has been provided for this in the Budget. The Budget is silent on land reforms. Land reforms are important for the creation of jobs in rural areas.

Workers are also agitated over the current rate of interest for PF. The previous government brought down the rate of interest from 12 per cent to 9 per cent. Workers expected the UPA to restore the old rates. This is a social security measure. The government should not link this with bank rates. A worker joins work at the age of 18 and retires at 58. So, for 40 years the money lies with the government.

Does the UPA Budget mark a significant departure from the policies of the previous government? The Bharatiya Janata Party has been claiming that there has been no major policy shift. For example, the Budget has recommended an increase in the number of Special Economic Zones to boost production, exports and employment. A Bill to regulate such zones has also been proposed. It is well known that no labour law applies in this sector. The previous government too was keen to promote such zones. How do you view this?

This Budget is different from the previous one. The BJP-led government never paid attention to the needs of the rural sector. This Budget has an orientation towards the needs of the village economy. But it needs to be properly implemented. It has to be ensured that the beneficiary is not only capital but also the worker. The BJP government never thought of reviving sick industries, neither was there any intention to strengthen the PDS. So there is a departure, but we have to see how this is brought about. As for the SEZs, these are areas where labour laws are absent. It is a lucrative industry for employers, as they do not have to give any benefits like bonus. The previous Commerce Minister made a public statement that labour laws would not be applicable to SEZs. We are not in favour of such zones if labour laws do not apply. We are not against the development of these zones but why exempt them from the laws that are applicable everywhere? There are 500 such zones all over the world, and there is a move to increase this to 1,000 within three years. One of the main reasons is cheap labour. Today 100 per cent production is being shifted to these zones owing to the availability of cheap labour. Employers abroad get away with paying lower wages by using the threat to shift production where labour is cheap.

How do you rate the UPA Budget from the point of view of the industrial working class? While a lot of stress has been laid, ostensibly, on the rural sector and rural employment, what are the benefits to industrial workers? In a televised panel discussion, the Finance Minister referred to the Left as being his conscience. Does this indicate that the government has good intentions?

There may be good intentions but what is done finally is what is important. Apart from the industrial working class, the traditional industries should be given a major fillip. I agree that there is some reference to them but no substantial allocation has been made. This sector should be revived, for this will generate jobs. The government should seriously think of reviving the handloom and powerloom industry, for this sector has the potential to generate employment. We welcome the positive aspects of the Budget - the negative ones, we oppose.

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