Your Q, His A

As compared to $3.6 bn in 1997-98, foreign direct investment in the year just gone by was below $3 bn. Portfolio investments, or the money put into the stock markets, fell to less than a third last year from $3.3 bn in 1996-97.

To that extent, Gujarat won’t really hurt investor sentiments that much more! Most investors appreciate that India’s a very large country, and so communal violence in one part needn’t necessarily spread to other parts.

But the lack of economic reforms is common to all parts of India, and that worries investors.

As to whether foreign investors will want to invest in places other than Gujarat, it seems likely though you’ll never get to hear anyone saying that — who’d want to risk their life and property that’s still in Gujarat?

Even General Motors, whose Halol plant was hit, has refused to make any categorical or strong statement.

• Did Yashwant Sinha’s anti-middle class budget cause the BJP’s rout in recent elections?

THAT’S what several BJP MPs are saying. But if Sinha’s taking away sops from the middle classes was indeed the reason for the BJP’s defeat, then the Akalis should have won the Punjab assembly elections because all that Parkash Singh Badal did in his tenure was populism.

The point is that his free-water and free-electricity promises sounded very good, but when they bankrupted the state and then resulted in a situation where even the water and power themselves became scarce, the voters saw through the Akali gimmickery — that’s why the Akalis lost.

In any case, some of the so-called anti-middle class elements of Sinha’s budget weren’t really so. Let me explain.

Take the huge subsidy on LPG and kerosene, amounting to around Rs 13,000 crore last year. Who do you think paid for this?

The government paid for it, but that’s money which it got by spending less on health, or education, or on drinking water for you. So by being ‘anti-middle class’ Sinha is taking money away from the middle classes, but will then spend it on the poorer and needier sections.

Besides, with close to half the kerosene subsidy never ever reaching the poor (much of the kerosene instead is used to adulterate diesel and sold at petrol pumps), you can imagine just how your tax funds were being wasted earlier.

• Is the economic slowdown showing any signs of lifting?

YES it is, but the more serious problem is that the manufacturing sector continues to remain in the doldrums — growth is down to a fourth of what it was five years ago.

Today’s revival, or fall, is almost completely dependant on the performance of agriculture and that, in turn, is very dependent on the quality of the monsoon rains.

The only way we can break out of this cycle, is by carrying out more economic reforms which will create investment opportunities for the private sector — look at the boom in telecom after private players were allowed in during the 90s. Also, India needs to be investing a lot more — south east Asia has investment rates around 8-10 percent higher than India — but the only way this can happen is if government spending (actually waste) is cut down dramatically.

And that takes us back to the economic reforms. So, we can have some marginal hike in growth, but till serious reforms take place, this growth will continue to be patchy.

• Why haven’t petrol prices gone down after the freeing up of the oil sector?

THEY haven’t gone down for two reasons. One, the government over-charges us on petrol as this is the only way it can partially make up the huge subsidies on LPG and kerosene.

Second, the public sector oil companies have been directed by the government not to raise prices — with global crude prices rising after the Middle East tension, domestic prices should logically have risen.

Each one dollar hike in global crude oil prices, if local prices are not hiked, will result in a loss of around Rs 3,000 crore to the public sector oil companies.