Come, Produce, Sell, Export

The issue of FDI in certain sectors is a subject of heated debate. What is your take on FDI?

IT and telecom are the fastest growing sectors and need huge investments. We have allowed FDI in these sectors. In IT we have allowed 100% FDI, in telecommanufacturing 100% and in services 74%. Investors feel comfortable with this and we have been able to address their fears and give them security from the government. They believe in the first miracle, after which all will happen.

With companies like IBM indicating large investments, are you revising your FDI expectations up from the earlier $10.3 billion?

If we look at the last three years, our expectation was that around $9-10 billion in FDI would flow in. Now, I expect to double my target by year end. This month I am going to Korea to sell India as an investment destination. After that, I am back to Singapore, a nation from which I have high expectations. I always believe in knocking at doors for selling India, there is nothing wrong in it. I think my duty is to explore the possibilities and highlight the advantages of doing business in India.

What is your sales pitch to prospective investors?

I always start my speech by saying that the PM, who was the Finance Minister in 1991, is the father of reforms in our country. I say, take a look at the policies and you’ll find the government’s attitude has always been encouraging. True, we are a democratic country and we argue, we argue very, very loudly, but when we take a decision we never go back. Consecutive governments, whichever party they may be, have been quite supportive. That’s one side. The other good thing is that the opportunity in India is enormous. My big selling point is that I come from a country with 1.2 billion people of which 60% are below the age of 35 years. We have a market. So manufacture in ourcountry, sell in our country and export from our country.

Which new segments are you focusing on for FDI?

I feel new areas like LCD and flat screen displays should attract a lot of investment. It’s a huge market. Today alone we are selling 150,000 flat screen sets in the country. I am looking to attract display manufacturers like LG and Samsung to set up shop in the country.

A policy is being circulated for this and will be adopted soon. Another area we are looking at is large-scale manufacturing of photo voltaic cells.

The other important area where we are missing is semiconductors. Last year, on June 7, when I was in Silicon Valley, it struck me that we needed to kick-start thesemiconductor business in India. There is a major initiative being undertaken for the creation of a semiconductor industry in the country. The ministry is actively considering the draft policy for this. We realise it is important to bring in private enterprise for creation of such facilities as they not only bring in the technology and marketing skills, but also make the project viable. Further, this is a capital-intensive industry and every three years you need to reinvest as things change fast—from 250 nano metres (nm) we are moving to 90 nm and in a matter of time we will migrate to 45 nm. This is the right time to be in this field and I believe we should target the high value segment of the industry.

People have questioned the viability of setting up semiconductor facilities in India. Intel has also not committed any investment in this area. How do you propose to make this business attractive?

All multinationals have their own reasons and plans. To invest $3 billion just like that is not an easy decision. AMD has come to India and we are in talks with Intel. The door is not closed for others, but those who come in now will have an early bird advantage. We want to grow fast in this business and are taking necessary steps for it. Thegovernment is considering viability gap funding to make the business attractive for prospective investors. This is essential because the investment is large. We have seen this in the United States, the United Kingdom, Japan and Korea, China, Germany and Taiwan. The government funds the industry there. We too have to look at such alternatives. We are looking at equity partnerships. We are very clear that we don’t want any second-hand equipment coming to India. The technology should be at par with that in other parts of the world.

This is an industry where the asking investment keeps going up, a firm investing $3 billion today will be investing $6 billion in the next five years and $12 billion in thefollowing five years. The government has understood that this is a high growth area.

Steps are being taken to establish core component supply to companies such as Nokia, Motorola, LG, Flextronics and Solectron, which have set up theirmanufacturing centres in India over the last two years. And there is interest in the business in India. This despite the fact that we are a late entrant in the field. Semiconductors, today, are largely manufactured in China and Taiwan. A recent study by Frost & Sullivan shows that in seven to eight years, the semiconductor business alone would be a $40 billion opportunity offering employment to 9 million people.


Talking of handset makers and hardware companies, how do they react to your proposals for Rs 1,000 handsets or Rs 10,000 PCs?

All major handset makers have set up shop in India. Nokia is making 2 million handsets a month. Motorola, from January 2007, will start producing one million handsets a year. They know what sells. They will not manufacture items that will not sell. At the end of the day it is all demand based. Mobile phones are too personal. They are morepersonal than a wallet or a watch. In fact, we are selling more than 30 million handsets each year, more than what was once the largest selling item in India: cycles. Cell phones have become so common, so essential. They are no more a luxury.

So you are saying the market is the final driver. But how do you deal with issues such as the Hutch-Essar tangle? Do you leave the companies to decide?

The ministry is very clear. We are not here for resolving internal problems of players. I think they should behave. The ministry is not here to do any policing. The ministry is here to be a catalyst, a facilitator.

Beyond wrangles, for telecom services players the lack of spectrum is holding up growth. How is the issue being resolved?

Right now there is more demand for spectrum. We need spectrum for rollout of 3G as well as the present 2G services. The defence forces have occupied a lot of it. A coordination group has been formed with the department of telecommunication (DoT) and defence and has agreed to vacate 45 MHz. By year end more spectrum should be available to DoT for distributing it equitably. For now, the growth has not stopped due to lack of spectrum. All the operators in consultation with DoT are exploring areas of infrastructure sharing, not only in rural areas but urban areas too. We have started with Delhi and within a month there will besharing of towers. If we succeed, it can be done in other places too.

Telcos want spectrum, BPOs want low-cost bandwidth. How are we looking to address this need?

It’s a numbers game. The international long-distance plan that I am working on seeks to reduce the bandwidth cost by increasing competition in theinternational long distance area. This will internally help the BPOs because 15% of their total cost is bandwidth.

If we really derive the cost for India, from here to the United Kingdom is the most expensive. From UK to United States is the cheapest because there are many fibres going down there. From here to Singapore is expensive, but from Singapore to US it is cheap. Given that 40% of our BPO exports are to the United States this is animportant factor for the industry. The government is trying to provide a level-playing field, and I am in a hurry. The reason is China, which has realised that it needs to look beyond manufacturing where the commodity cost keeps increasing. China is taking up software very seriously. It has started making English a part of the curriculum. And China can work faster than us. They also pump in a lot of resources. So we have to make sure that we give our Indian entrepreneurs an edge. We have to see that they can look beyond big cities, and that they enjoy a cost advantage in bandwidth.

Is the Chinese threat behind your backing the industry’s demand for extending the Software Technology Park scheme, despite opposition from the finance ministry?

It is evident that one of the successful policies that the government has worked out is giving a single window clearance and now we are talking about $32-billion IT-enabled services’ exports. It is working extremely well and the industry has benefited. Today when you see other countries following us they give the same incentive and if we stop the clock in 2009 then all our companies will start looking at China, Sri Lanka. So we have to maintain this. We employ so many people, why should we give up? Every state is competing with the other. Today, ITES is what everybody wants, they don’t want anything else. As the information technology minister, I support it. I think this catalyst should continue.

This article originally appeared in Outlook Business, July 5, 2006.