Direction of Modi government absolutely clear and right: Patricia Hewitt, UK Business Council head
No investor in the world believes that India is a tax haven and the large tax demands on Cairn and FIIs have rattled investors and must be resolved quickly, said Patricia Hewitt, head of the UK India Business Council backed by the British government. With industry sentiment about the Modi government moving from irrational exuberance to ‘rational optimism’, she said it must move from its campaign poetry to governance prose. In an interview with ET, Hewitt, who was a minister in the Tony Blair government, said the changes in the land acquisition law are critical for turning India’s economy around, and many British firms are keen on initiatives like Make In India. Excerpts:
Where do you see India nearly a year into the Modi regime?
We have started in more recent months, in both the British and the Indian media, to hear (usually anonymously): “Oh, business is disappointed and there hasn’t been a big-bang reform” sort of comments. Certainly, in the business community, sentiment has moved from almost irrational exuberance and huge expectations that nobody could possibly meet, to rational optimism.
That’s very good. You campaign in poetry, and govern in prose. Narendra Modi is brilliant at campaigning in poetry, as one of the world’s great political campaigners. But the government is both about the vision and strategy and about the execution, which is governing in prose.
Could you elaborate on this mood swing in businesses about India?
After the election, expectations were sky high, too high. The PM himself made it very clear that there had to be a more rational understanding of what it would take to transform the India narrative.
Now, as a former minister, I think that (industry’s disappointment) reflects truly unrealistic expectations of what a new government can actually do. But I also believe it reflects an underestimation of what had been done, not only on the institution building side, but also the Make In India, rapid progress of GST with a firm date for its introduction, the increase in FDI limits in insurance…
With the changes now being made to land acquisition, which I hope the government would be able to translate from an ordinance into a law very quickly, is also critical to advancing infrastructure. There’s been a great deal already done, including the energising of the bureaucracy.
Of course, not everything has happened in exactly the way that every business leader, investor or employer would like, but the record is impressive.
Are you saying everyone expected a catharsis from the Modi government?
Catharsis is a good word. When there is such an overwhelming electoral victory, it is a sort of catharsis. But it also leads to the problem of sky-high expectations. From expectations, then disappointment, and now, what I have heard in every conversation has been ‘Of course, we are optimistic. Look at all that’s happening. Of course, some things are not moving as fast as we would like’. But the direction is absolutely clear and right.
Does taxation remain a touchy issue?
Yes. I have discussed this privately with the finance minister. We welcome the public comments about retrospective taxation not being used in any new case. But there’s concern on the recent issuing of tax assessments against Cairn and FIIs. I hope things would be resolved very quickly, because anything that creates uncertainty is not good for investments.
The UK is the largest investor in India among G20 nations, both through corporate investments and the institutional investments coming through the City of London. We are huge backers of the Indian economy and there is a great deal of investment more to come from the UK. At the end of the day, the more investment India can mobilise, the faster it will grow and generate the jobs that make the best pro-poor policy for any country.
But the FM has explained that India is not a tax haven…
I don’t think any investor in the world would regard India as a tax haven. Cairn has a very large tax demand and is a very large investor in India and has created huge wealth for India, not just in investments in energy and power, but also its social investments in Rajasthan. These individual corporate issues would have to be resolved in courts and in arbitrations and they should be fixed as quickly as possible.
Have hopes of FDI in multi-brand retail or foreign universities’ entry into India evaporated?
On single brand retail, where 100% is allowed, we were proud that British firm Pavers Shoes was the first foreign retailer to take advantage. On multi-brand retail, it has been devolved to states. The fact that they have simply left the (multi-brand retail) policy where it is rather than reverse it, is an important signal. That will be plenty to go on with.
We are seeing some interesting investments via collaborations focusing on the back-end and logistics supply chain and that’s going to be absolutely critical for delivering real food security for India. India has got this extraordinary agricultural wealth that could create huge jobs and better living standards for farmers and greater choice for consumers. It’s a win-win.
On foreign universities, we would like the bill initiated by the UPA to be passed. A lot of our universities are already building partnerships here, including Oxford, Edinburgh, Kings’ College, and Cambridge University.
What has inspired confidence so far?
As a former minister, what strikes me is how much has been done in the space of a short time, particularly in institution building. It’s important for a new government to have a broad strategy, vision and initiatives. But if you haven’t got the institutional capacity to deliver, then there is a disconnect. Just before the elections, there were worries about things, like would Raghuram Rajan be retained as the RBI governor. What we have seen is not just governor Rajan staying, but strengthening of the monetary policy framework.
Getting quality of economic advice and leadership in a new government with a strong FM and a powerful PM is very important. To see a strong central bank, a clear monetary framework and inflation coming down, a more stable exchange rate — that is critical to reinforce the boost to growth that was a key theme for the election of the first majority government India has had for three decades, with a clear mandate for development and jobs. Secondly, a different partnership is being seen with states with the Niti Aayog and the mobilising of CMs by the PM. When I first heard ‘competitive and cooperative federalism’, I thought it’s a really good phrase. But it’s real as the PM and his top ministers are going to different states and urging them to compete for investments.
