Indo-US relationship is ruled by clichés and we need to move beyond that, is the word coming in from Mahindra Group chairman Anand Mahindra. He believes people in the US are impressed with Prime Minister Narendra Modi so far.
According to him, there was never a doubt that India has potential, but it was more about whether there is a catalyst or a conductor. "They believe Modi is the right conductor," Mahindra told CNBC-TV18.
He says, so far investors are pleased with movement on FDI front and believes allowing foreign direct investment (FDI) in defence is a goof move.
Mahindra says investors understand land and labour laws won't change overnight. All they are looking for is a commitment or an unequivocal promise from Prime Minister Modi that instances of retrospective taxation won't happen in the future. Investors are not looking for immediate repeal of retro tax, says Mahindra.
On today's bi-monthly monetary policy, Mahindra feels Reserve Bank governor Raghuram Rajan can perhaps start thinking about lowering rates.
Below is the verbatim transcript of Anand Mahindra's interview with CNBC-TV18's Shereen Bhan.
Q: We have seen the Reserve Bank announce its credit policy along expected lines. No changes to any of the key rates which is what the street was expecting. It is unlikely that we are going to see rates come down any time soon perhaps not even at the end of this financial year. Credit growth continues to be sluggish. How real is the turnaround in the economy to your mind?
A: We are going through a very critical period right now. Everybody has been holding their breath waiting for this festival season to start and we are all expecting some kinds of magic to take place. It is a little early but it is very important. How the season goes is going to tell us whether the revival is real or not real. I am on the phone everyday asking our sales people is it real. There is still that magic rebound we wanted. It hasn't happened yet. So yes, you are right, it is not real yet. But let us not jury us out. Let us wait till festival phase is over.
Q: But there is another question on the interest rates and the possibility of rates staying where they are at least till the end of this financial year. Reserve Bank has always maintained that corporate India is saying that the interest rate will lead to an economic rebound are somewhat exaggerated. How would you comment on that and the fact that interest rates are unlikely to move low any time soon?
A: The Governor of the Reserve Bank of India (RBI) has done an excellent job and the right thing in waiting and watching for as long as he had the fight against inflation, the fight to prevent it from raising its ugly head is more important one. However there is a kind of convergence of some benevolent events. If you look at commodity prices for example, they have been remarkably low, so given that there is still a little bit of a lag on Index of Industrial Production (IIP). He should probably, in my opinion, he doesn't take advice from anyone but I would say it is maybe time to begin thinking about lowering rates. The propitious time is coming in.
Q: Do you believe that investors are buying what Mr Modi is selling because let me quote to you the reactions that I have got. Everyone is optimistic, some are nervously optimistic about India, some are guardedly optimistic and some are cautiously optimistic. How are you reading mood and sentiment?
A: I love those phrases, they are such nice clichés, isn't it? I am going to use that as a take off point. Now in America we have to move beyond clichés. If we are going to conquer America the conquest has to move beyond clichés. The whole business about the largest democracy and the oldest democracy, our relationship has been ruled by clichés for too long.
People are now looking to see real progress on the ground. I believe they have been very impressed with what they have seen of Mr Modi so far. They recognise that what India needed was a kind of conductor for the orchestra. They never doubted the talent of the individual musicians of the orchestra. The problem is has there been the right conductor with the right piece of music for us to follow. I believe what this mission is doing in the first instance, and that is very important is establishing that Mr Modi is that conductor everyone was waiting for.
But yes, there is guardedness about the fact that will he be able to deliver and that should be everybody's concern including Mr Modi. He set very high expectations while he is here and the downside of high expectations is we have to deliver.
Q: Investors that we have been speaking to continue to be concerned about retrospective issues, retrospective tax in particular because there we actually haven't seen any changes being made by this government, the setting up of a committee seems like a bit of a copout. So people are not entirely convinced even though the government has said that the era of retrospective action is over. Has that continued to be dominant concern in your conversations as well?
A: It is interesting you asked me because I have a kind of very fresh conversation to report on. Yesterday I was at the Council on Foriegn Relations and I was flanked by two important US businessmen and I turned to them before Mr Modi started speaking and asked them what is your expectation and particularly on the tax issue and I promise I wouldn't quote the person but he said, as long as he makes some unequivocal statement that we are not going to let this happen in future and that frankly there are political compulsions or other issues by which I have to find the resolution for the past issue but I commit that in future we will have more enlightened policy which will not include retrospective taxation, they are fine with that. They said a bold statement such as that would be fine.
Q: As far as retrospective action and retrospective tax in particular those concerns have been allayed?
A: This is a sample of one, as you the person who I was talking to, but I am saying that I was happy to find that there is a practical approach to this. People are not sitting here saying we want that act repealed otherwise we don't look at India. They are saying we want a forward commitment from this man and we want an amicable resolution to the past.
Q: An area of opportunity that everybody is talking about is defence where the Foreign Direct Investment (FDI) limit has been hiked to 49 percent. Some investors believe that this government should have been bolder. The government has made it very clear that you can go beyond 49 percent if there is transfer of technology. That is an area of interest for you as well. What are people saying to you as far as defence corporations and defence joint ventures are concerned in specific?
A: They are pleased that there has been movement on that score that there has been a raising of that limit. I have always said that the problem was not so much the limit the FDI limit. It was the spending of the government. You are coming to India to do business, to do business with what you perceive to be the largest arms importers in the world. So everybody is seeing this bonanza. The bonanza wasn't happening. The process of purchase of procurement was paralysed and that is far more important.
If we see the revival of reasonable, predictable procurement in a transparent manner, that is going to do far more to get investment into defence rather than fixating ourselves on this limit and the cap frankly 49 percent has been welcomed, it is fine.
Q: So do you believe that we are going to see a lot more money coming into the defence sector, more JVs being inked or do you believe it will continue to be wait and watch for a bit longer?
A: It is wait and watch for a little while to see whether the procurement process has been truly and sustainably revived.
Q: In terms of other key reforms land acquisition is something that people talk about. Labour reform is something people talk about. All of this requires legislative action. There is a concern on whether this government will be able to push that through or not. What are the other reforms that people have talked to you about what they would like to see the government undertake?
A: There is a lot of talk. The large reforms that people have talked about here are related to land and to labour laws and of course they have been watching with a very great concern on resource such as the coal issue. They recognise that the judgement that came recently is a process of law. They understand that this should result in greater transparency in the future. But they want to see action, they want to see that when they come into India are they going to get answers on these.
There has been great deal of encouragement by the 'Make in India' single window approach, the fact that your queries will be answered. They are worried about having to go from pillar to post to find out what is happening. They need someone to join the dots for them in the government. If that is done that will go a long way in making sure that people come in because every flow with the land acquisition bill, every clause of labour reform that we want is not going to get sorted out tomorrow and they understand that.
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