New Developmental Financial Institutions Needed To Funnel The Development Of The Industry: EXIM Bank's David Rasquinha

Export led growth is vital for Indian economy. Post liberalization, India’s growth story based on domestic consumption is over. Having said that we have to do a lot catching -up with neighbors in scaling up in global trade market. For example, India’s share in the global trade export in merchandise is just about 1.7% and 3.5% in services. China contributes 17% in global trade and so we cannot avoid comparison. India contributes 2.6% and need to scale up at least 8-10% to become a 5 trillion economy by 2025. It is the principal financial institution in India for foreign and international trade.

Good morning, budget is around the corner and it is imperative that we focus on the inherent aspect of Indian economy, growth, and the future prospect. Since 1991 as we have seen, India has opened its market under liberalization and we have become part of the global trade. India has been striving to increase its stake in the global trade market. Having said that we have not succeeded compared to even our neighbors in scaling up in global trade market. For example, India’s share in the global trade export in merchandise is 1.7% and 3.5% in services. And to talk about such important issues that will redefine in fact the Indian economy for the future, we have EXIM Bank MD, Mr. David Rasquinha today. For my viewers I would like to give a perspective of EXIM Bank. The Export-Import Bank of India which is known as the EXIM Bank was set up in 1982. It is the principal financial institution of India for foreign and international trade. EXIM Bank finances import and export of goods and services. 

A little bit of introduction about David Rasquinha, he is a Managing Director and Chief Executive Officer of Export-Import Bank of India. David joined EXIM Bank in 1984-85 and since then he has had a wide range in exposure to the broad field of export credit having worked in the areas of treasury, multilateral agencies, funded project planning and credit and risk management, trade finance, project finance and many other important, he has been part of committees by the Reserve Bank of India. He has served as the resident representative at the bank at Washington DC office and since 2017 he is at the helm of EXIM Bank as a Managing Director. 

David, welcome on BW Businessworld, and let me begin by asking you India was hit badly among the nations due to pandemic led lockdown, our GDP also plummeted historic low; you are aware of that. What is EXIM Bank’s forecast based on the global outlook?

David Rasquinha - MD India, Export-Import Bank of India: I think we are pretty optimistic, we should not fall into this trap of looking at numbers. Typically, any GDP estimate, any GDP forecast is based on an econometric model and a model basically looks at what has been the past trends, what has been the current economic factors and based on that generates an estimate. So, any model is predicated that data is timely and data is not marred by blips. If there is a blip you eliminate the blip or you control for the blip using seasonality issues in order to get aligned. I think we need to look through the current year, it’s not just India. You can look at any country in the world and Covid19 has had a very drastic impact. You can say that it may be more in some cases it can be less in some cases. And similarly, the estimates in India itself depending on when the estimate was made and who is making that estimate, it ranges anything from -5 right down to -50. To me that is not important, what is really important is you see whoever makes the estimate for a fall in GDP this year shows an almost identical growth in GDP in the next year. So what it is, you are seeing a blip and an immediate recovery. To my mind let’s look forward to that, this year is something which no country in the world is going to come out smelling of roses. What is going to happen in FY22 that is what we should be looking at and I am very confident that whatever we have lost in the current year FY21, we will mostly gain it in FY22, look through these numbers.          

Manish K Jha: I understand, we would rather look for the future aspect and future solution than pondering in the past, but I understand India is a large country, 1.3 billion, and we are trying to be a 5 trillion dollar economy. Having said that, Exim Bank as one of the major financial institutions that is responsible for the international trade. India was impacted badly while the other country for example China and South Korea somehow managed to retrieve certain ground in international trade. So how do you see India doing on international trade especially during Covid19 pandemic and, from the EXIM Bank point of view?     

David Rasquinha: Okay, let’s distinguish between EXIM Bank and Indian exports, we’ll deal with both separately.  Where EXIM Bank is concerned I think we’ve not had any disruptions what so ever. Our systems have been robust, our processes have been robust. Right from March we went on to a work from home. We’ve managed to do the complete, the full audit of the accounts for the year ended March 2020 without any problem, published our annual reports. We’ve held board meetings, we’ve held credit committee meetings. We’ve even monitored projects remotely using a video link, having had somebody actually walk around the project and report back on this. So from our point of view I think it’s been seamless, it’s not ideal, of course. At the end of the day we are human beings, we are social beings, we want to meet each other, we want to shake hands, and we want to get to know. So it’s not the perfect situation but as far as the bank’s business is concerned I have not seen any major interruption. The challenge, of course, is the new business. With your existing business, you can always maintain it by using phone linkages, by using conference linkages but generating new business means you need to be travelling a lot. You can’t get new businesses sitting in your office, you’ve got to be going and sitting in the client’s office. So that definitely because with Covid19, we could not do the travelling that we would otherwise be wanting to do. But from about November, I think we’ve restarted our travelling, I’ve personally been visiting clients all over India. My colleagues have been visiting, we have created a new group core tasked only on business development. So I think we’ll be ending the year at quite a regular pace.        

Manish K Jha: Before we go down into the micro level understanding and some of the aspects of EXIM Bank, Indian economy and export challenges, I would like to put forth some broad issue. As I mentioned before, we are done with our domestic consumption led economy. But do we see any strong export led economic policy the government is pushing. Is it something on the horizon which we don't get to hear often? We only get to know in some of the conferences led by FICCI and CII. But do we have a very strong export trade strategy say, country like South Korea; I have seen the success story as an emerging nation, and we are also in the same position. I have seen your many comments, very passionate comments on scaling up India’s trade in global market. What is your take on such things and can? How can we raise this discourse among our policy makers?  

David Rasquinha: Certainly, first of all let’s take a step back. Let’s say with South Korea, it’s probably not the best comparison because South Korean economy is much smaller than the Indian economy. The domestic market is much smaller, the export orientation by definition is much higher because given the size of the South Korean market they necessarily need to look at the export market in order to grow and have their industries reach global scale. In India we have the benefit of a very large domestic market, a large domestic economy, so it’s no surprise that our exports as a share of GDP are less as compared to South Korea. 

But certainly we can improve it, that doesn’t mean we rest on our laurels where we are, we look forward, and this is where our government has been doing a lot of work. Under the Atma Nirbhar concept there has been a double pronged approach, on the one hand to step up exports, on the other hand to look where items that we are importing can perhaps be economically and quickly manufactured in India. 

Photo-EXIMBank

Now let me give you the example of the pharmaceutical industry for example, a lot of the APIs which go into the pharma industry come from imports and particularly from China. But that’s not a long term sustainable or a healthy situation. We need to understand why those APIs are not being manufactured in India, is it because there is an environmental issue, is it a cost issue, is it a scale issue and try and get them manufactured in India so you have control over the entire chain. If you see India exports much for a formulation as compared to China. The problem is the lower-level raw material comes from China, the final product goes out from India which is good for our margins, is good for our image but it’s not good to be too dependent, so that is one example. So under the Atma Nirbhar this is something we need to look at because there are a lot of items that we are importing including capital goods, etc. which we can get it done into our own domestic economy, you can cut the trade deficit by almost 60%, so that is a huge number which should help us a lot going forward.But it should not be just looking at substituting imports that is a, you know, a secondary approach. 

The main approach should be on promoting exports and here the government’s productivity linked, production linked investment schemes, the PLI scheme that is going to be tremendous useful. 

It’s already shown its impact in electronics and the area of phones, you now have more factories coming up in different areas because bear in mind, under the WTO norms, you cannot look at only supporting exports then it will infringe the WTO norms. You need to have the overall production and that is something good. Because I have never accepted this concept that you can have one line producing for exports and another line producing for domestic market, no, that’s a false dichotomy. 

All your production has to be of a quality and standard that can meet the needs of the export market. The export market cannot be treated as a residual or a separate point. Including now you are looking at lot of companies in the world who are looking at diversification of risk. 

The Covid impact, the geopolitical impact in Asia, in the Americas, has taught a number of companies a lesson which frankly we learnt long back in risk zero bond. You never put all your eggs in the same basket, particularly when that basket might be approaching priority stages. You need to have even if it is not cost effective, you want at least 2 different sources of raw material, 2 different sources of intermediates, and you need a backup in all cases. A lot of companies are now looking to India, Apple is already here, Foxconn is here, lot of other companies are looking at coming to India, this would on its own look at boosting exports as well. 

Manish K Jha: This is for you as economist. David, you talked about very important aspect of pharmaceuticals. We spotted the very aspect of problem --API and we started addressing since last year. What has been done so far and does it take lot in our Indian system to bridge such gaps?

David Rasquinha: I would say in any system. See, If you look at any systems and particularly for pharmaceuticals because ultimately a pharmaceutical is a product which is going into your body. It’s either going orally as a tablet or as a capsule or its going intravenously as an injection or as a fluid suspension. So you have to be absolutely careful about the quality and the standards of these materials. Not just the final material which goes. The qualification has to be at the production stage, not just for the material you are producing but at the production stage for the raw materials. So if you are looking at shifting an API, a particular API from another country to India, it’s not just a matter of identifying land and setting up the factory, you have to then re-qualify the entire production process, the raw material process, the final output, keep the records available and only then will it be qualified for that. So you know this is something that we should do and we are doing but we should not expect to see overnight results. This kind of thing happens only in the fiction books. This is a long haul process, we have already started, and we need to be patient for a couple of years to see the results of this.  

Manish K Jha: My next question embraces two aspects of Indian economy and Indian foreign policy, one is about having a developmental partner, and second is  about the growth of Indian economy, and there comes the question of Africa.I would like you to talk about the recent project investment in Africa through EXIM Banks--some of the initiatives and how are we reaching especially the Continent. What has been the track records and projects completed under Line of Credit?

David Rasquinha: Sure, for us Africa is a very, very important partner, for we are the online or I would say the implementing agency for the government in its diplomacy and in its outreach to various countries of the world particularly Africa. 

As of the last date we had 311 government of India supported lines of credit to 64 countries with credit commitments of almost 32 billion US dollars. Now out of these 42 countries who are in Africa and the commitments there were almost 13 billion US dollars, so you can imagine how important this continent is to us. 

This has been the scope for many, many fascinating projects in roads, in railways, in agricultural productivity, textile manufacturing, sugar industries and so on. So these are having a tremendous impact in Africa but I will go beyond the numbers, you know, we can always give you numbers and details of projects. What is really important is that what is the impact we are having on the lives of people over there in Africa? When you build a power plant, you are not just building a power plant. But now coming to the power capacity remember many of these countries don’t have 24 hours power. So what happens when the sun goes down, a child who would otherwise be going to school either has to study by candle light or has to pay for very expensive power through a diesel power genset, especially for a country which is landlocked. So when you are creating a power, you are not just creating power, you are creating a future for the younger generation in that country who will be the later leaders and they will remember that it is India which has created this opportunity for them. So power, railways to bring goods from the internal, internal areas to market, take people to areas of production centers to improve the farmer’s productivity, all this is something that we doing in Africa. In fact, let me tell you show you something, I am in my office right now and this is a photograph which I don’t know if you see it clearly.

This is a photograph I keep on my desk, this is a run-of-the-river power generation project in a country call Rwanda. Now this is small project just 28 megawatt project but you see when we went to visit them, these were the children who gathered right. So this is what I tell my staff always you are not just building a dam over there providing power, you are creating a future for these children. So that is what keeps us going and I think that is what we are doing in Africa which gives India a good name in that country. Unlike certain other countries we are not trying to shift people over there or use prison labor to build a project or to take over some natural resources. We are development partners, we are friends in that continent and that gives us a very, very strong position in Africa.

                  India’s Total Outward Investment in Africa during 2015-16 to 2019-20

         (Source: Ministry of Finance and Reserve Bank of India (RBI); and India Exim Bank Analysis)

Manish K Jha: India’s approach to Africa as a developmental partner is well recognized. There is also a grand concept like-Asia-Africa growth Corridor. But in the public domain, there is no clarity on how it’s being executed. A declaration of Asia Africa Growth Corridors was issued in 2016 by India & Japan, converging on developmental model of Africa. How is it unfolding? What role EXIM Bank will play in AAGC?

David Rasquinha: There are 2 parts to your question. One is the lack of information, I would invite you and all who are listening into our interview, please visit our website you will have ample information on development projects funded by EXIM Bank, on the lines of credit, success stories. I mean you can actually go and find the data base on various parameters and I think you will get a lot of information and if you need more, please feel free to write to me, you can use the Right To Information Act if you need but I am happy to respond even without that because ultimately this is the business we do. So I am more than happy to share the information, to share success stories or to put you in touch with people in those countries who can talk to you, so no worry about information. 

On the Asia-Africa growth corridor hub I can’t comment on the political aspect because I am ultimately at the end of the day a developmental banker so I cannot speak on the political aspect. But to me this is a marriage made in heaven, if you look at India and Japan and when you are talking India-Africa growth corridor you are basically talking India and Japan. You could--maybe-- bring in the other countries, but at the moment it is India and Japan.

Well if you just look at the 2, and the comparison between the 2 countries, you have India a high population, surplus labour, low cost of labor, you have Japan with low population, low labour, and high cost of labor. You have Japan as a surplus capital with low cost of capital and India a scarce capital with the high cost of capital. You know it’s like merging, it’s a marriage made in heaven. So we can use the strengths of both the countries to look at projects that is ideal. 

Let me give you an example take a railway project and I mean there are several you can look at, but take a railway project, for a railway project you need actual grading of the land, construction of the railway line, construction of ballast, building of culverts, bridges, electrifications, signaling, platform, you name it and of course, you need the rolling stock at the signaling side. There is the high tech area which is the sophisticated signaling and so on, there is rolling stock. An Indo – Japanese consortium could be a fantastic bid for this. Because we have the civil, I mean we’ve built railways right across the Indian sub-continent which covers rivers, deserts, swamps, winter, winter conditions in the north, hot summer, monsoons, there is nothing we have not seen in India that we would see in the rest of the world. So we have the ability to construct to those railway lines in any country in the world. For the rolling stock we could either use partly from India partly from Japan, the technology could come from Japan, between the 2 of us it could be a fantastic project. So this is just 1 example in railways, you can replicate the same logic in power and so on. 

So from our side we are very bullish we already have an agreement with Japan Bank for International Co-operation. They have helped us in raising funds in the domestic market. EXIM India in fact is the only Indian issuer in the Samurai Bond market in Japan, it is a highly reputed bond market in Japan. 

Manish K Jha: So, it is a good marriage, I understand that is great concept. What are the projects under the developmental program with India? Would you cite some of the projects? 

David Rasquinha: I wouldn’t know, from EXIM Bank’s point of view, no. We are ready, we have signed the MOU, we have had projects so far but there may be others which I am not aware of.

Manish K  Jha: As we go beyond Africa and lines of credit offered by MEA and Ministry of Finance, what are the other potential investment opportunities that EXIM Bank is scouting for in the global market specific to region, for example, larger Eurasian region? Could you throw light on some of your fantastic incentives and how the Indian investor can use your platform?

David Rasquinha: Overseas, certainly in fact though you know we tend to be somewhat unfairly known mostly by the lines of credit because those are the big ticket items to get all those listed but we do a lot of others. 

Lines of credit is barely around may be 60% of my business, there is a lot of other business we do, and one of it is exactly what you said that is invest overseas. For an Indian company which wants to invest overseas either by setting up a joint venture or a subsidiary, acquiring a company overseas or building up a forward market. 

Now within Africa we have supported the building of concrete sleeper plant, it saves the use of wood from trees and the sleepers can be built out of concrete. We’ve supported a plant making liquid glass, sodium silicate for the detergent industry, steel plants, agriculture in the processing, production of woolen blankets and so on. So from our side we are more than happy to look at financing investment into Africa from any of the Indian companies which go, we just need there has to be a minimum 51% holding by an Indian company and we are more than happy to look at this kind of support. 

Manish K Jha: Some of the sectors you can point out specific to Africa where an Indian investor can look into?

David Rasquinha: Sure, textiles, I think it’s a very big concept, you know, India is very good at fabric. Our strength in the fabric production, apparel fabric as well as home textiles.  Garments ultimately you have to do on site. There is for example the plant in Ethiopia financed by us which produces denim. Denim fabric produced in Ethiopia which is then exported to the European Union. Now the next step would be to convert that denim fabric into actual jeans or jackets or I don’t know I am a bit of old person, I don’t know what the young generation is wearing in denim but whatever they would be liking to wear, the same denim can be used for that and we would be happy to look at providing that kind of support. 

Manish K Jha: Challenges in terms of political instability in Africa and how can Indian exporter mitigate such risks? How does EXIM Bank assist our investors under such circumstances?

David Rasquinha: I’ll put it this way, political instability can happen in just about any country in the world. We have seen some very interesting TV shots of a country in America recently which we probably never would have expected. But joking apart, see we have many of us India have this tendency to look as Africa as a monolith. 

Africa is a continent with 55 different countries, all these countries are not the same except that they are in the same continent, and they are very different. Several of the countries in Africa are rated higher on the ease of doing business as compared to India. Mauritius for example or some of the countries in Eastern Africa are rated higher than India. So we need to stop looking at this as one monolith and letting a few negative headlines bias us.  There are very, very good investment opportunities in many of the African countries. 

In EXIM Bank we have come out with a study on what are the 10 best countries in Africa to invest in, it is on our website and I would invite your viewers please download it, ask us any questions you have about that. So political instability it is a few countries, not the entire continent. You don’t have to go to those countries where you have a fear and even where you have a fear there is risk mitigation available. The EXIM Bank is prepared to provide lines of credit or bias credit taking the risk on itself and with the support of our sister organization, Export Credit Guarantee Corporation, ECGC, we have private insurance available, it is more expensive yet, but there is definitely private insurance available for many of these countries. We can look at the MIGA, the Multilateral Investment Guarantee Agency and arm of the World Bank Group, so there are possibilities. It is not as if it is an absolute wall which we cannot break, there are ways of getting over it. The cost an issue, some covers can be more expensive, some can be less expensive, but as I said, there some countries where the cover is even less expensive than India. 

Manish K Jha: We see a lot of potential especially in the defence export. In 2013-14, we were just about exporting worth Rs 1500 crores which turned out to be Rs. 11,000 crores of export now. Defence Export is the silver lining and hold immense potential for Indian Defence PSUs and emerging private industries? So, if you could talk about some of the mechanisms, lines of credit for our defence, especially for the private players, because at least for the government they can easily reach out to you. What about the private defence entity and even a start-up if they want to use your programs, incentives and the lines of credit to scale up & expand through EXIM Bank?

David Rasquinha: At EXIM Bank we do not differentiate between public and private sector, any Indian exporter is a customer for us. In fact even if it is a foreign owned company, but it is established under the laws of India, producing in India and exporting from India, they are my customers. So the ownership, I think we are ownership neutral. At the end of the day my job is to increase exports out of India. So Mahindra’s is welcome, in fact they have used our programs to export some of their vehicles under a defence line of credit to Sri Lanka in the past. You had L&T using the facilities, you had Tata Group using the facilities, so it is very much in place. In fact a lot of, you know, what happens with defence is, it doesn’t get too much publicity. 

Some of you would be interested to know that offshore patrol vessels made in Indian shipyards have been exported to countries like Mauritius, to Sri Lanka, there is a possibility that they might be exported to East Asian country, I can’t get into details because it hasn’t been finalized just yet. 

I will ask you to give me about two minutes to talk about a very interesting program of EXIM Bank. 

So we’ve launched this new program called Ubharte Sitaare, or a Rising Star. What does this mean? What we have seen there are many good companies in India in engineering, in services, in other areas, who have a good track record, domestically they have good product well accepted by the Indian market but somehow they are not exporting or if they are exporting it is just a small part of their business, and they are not exporting to very remunerative markets. 

So what Ubharte Sitaare does is, it does a diagnostic and provides a solution. Now the simplest, of course, is a loan, but there are lots of people in India providing loans. We want to go beyond that. If you are looking at a small and medium industry what he needs is less of debt finance and more of equity support. He is however reluctant to give equity to a private equity firm or to an Asian investor because he is worried about losing control, naturally. After all he has built up the business. So together with SIDBI, that is Small Industries Development Bank, we are coming up with an alternative investment fund which should be getting off the ground during this quarter, which should provide the equity that the investor, that the entrepreneur needs without him being worried about him being distressed because after all EXIM and SIDBI we are not in the business of making defence equipment, we are there to support it. We will negotiate an exit upfront on terms which are acceptable to him giving him that equity boost to enable him to leverage his balance sheet better without the fear of losing control. We will also provide grant supports from our own profit, we are a profit making institution, we will set aside money from our own profits to provide him grant support which will go to building up certification. 

LCA Tejas ( Photo: BW's Manish Jha)

For example I talked to you about defence, but let’s look at pharma companies and we talked about the APIs earlier, why is it that a pharma company, a small and medium pharma company is exporting to countries in Asia and Africa, but is not exporting to the remunerative markets of the USA, you will agree with me that the margins are far better. The answer is very simple, you have to (Gap) jump manufacturing processes have to be certified, re-certified, inspected regularly by the US FDA, their record keeping has to be absolutely immaculate, their sterile facilities have to be doubly certified, this costs a lot of money. So for a medium sized industry, he says I don’t want to get into all of that, I will export here without that. So our point is look, if cost is your concern I am there.  I will finance it with a grant, it can be a soft loan to start with but there will be conditions. If you are successful in getting that certification I will convert that loan into a grant. So if somebody is worried that I have to spend 50 lakhs or 1 crore in order to get that certification, I will take that worry off his head. My reward is after that he becomes a regular exporter to these countries. He needs packaging assistance because whether it is pharmaceuticals or whether it is a consumer product, your packaging has to be protective of the product, it has to be attractive to the consumer as well, it is a profession, you have the Indian Institute of Packaging, and we are working with them to come up with solutions for this. So whether it is this which you just asked me about or whether it is something else, this is a program for which we have tremendous hope for the future because we are taking the medium entrepreneurs who are hungry for success and smoothing the path in front of them so that they can.

Manish K Jha:  I receive a lot of questions and I now want to ask on behalf of startups in defence. So how do you benchmark certain industry who can participate especially in the context of start-up under your lines of credit program? If their product is not used within the armed forces, not tested within the armed forces, but still can they scale up? Is there a restriction on the number of products and credit they can use, could you comment on such technical aspects?

David Rasquinha: See it is less dependent on the finance and more dependent on customer, we talked about a start-up in the defence area whose products are not being used by the Indian army, so whatever happens now how do you convince an overseas customer that he should buy, I don’t know, a gun or ammunition or something like that from a manufacturer in India when the Indian army is not his customer. You know, it is more a marketing problem than a production problem. So ideally I would say if you are looking at defence start-up in India, it could be a start-up it could be an existing industry also, your first test is to sell to the Indian forces, if the Indian forces are willing to trust that equipment and they are trusting the lives of our soldiers to that equipment, then it is always easier to convince an overseas party to buy. But it is very difficult to convince an overseas customer to start buying your products, if you are not successful domestically. It is a bit of a chicken and egg situation but I think you get my logic.   

Manish K Jha: With budget is round the corner and export being the focus area, what are the expectations in terms of new incentive schemes which could encourage our investors to look out? 

David Rasquinha: Well, let me first of all say that I have no idea what is going to come in the budget, it is a highly confidential process and I have no role to play in that. But I would like to maybe put forward a couple of ideas which I will be happy if they are accepted, but bear in mind I am doing it purely as an individual only. 

Now one of the things which I think we are missing in India is a long term development finance institution. 

You know, in the late 1990s and early 2000s this was an outshoot of the Narsimhan Committee and I think Dr. Rangarajan who was the RBI Governor at that point of time gone on record saying that we probably made a mistake. We wound down the DFIs, we closed down the IDBI, ICCI, and we encouraged them to convert into commercial banks. Now they added to the existing universe of commercial banks, but we took away a very, very important tool of the Indian industry. After all Indian industry developed on the basis of what I would call patient capital, long term loans, etc. Now it is very ironic when now as EXIM Bank, when I fund an overseas project I can provide even a 15-20 year loan to an overseas project, but a project in India is not able to get a 15 or 20 year financing, something is not right. And if you look at the experience of other countries, be it Korea, be it China, they have all used long term finance for development. Very ironically, and I would say that it is a bitter irony, at the time when we were closing down the DFIs, China was setting up the China Development Bank, China EXIM Bank and so on. Now the results are there for all to see that China Development Bank’s balance sheet is probably bigger than India’s GDP today. Now it is not a fair comparison, but you get the idea of where I am going. Now there has been a lot of mention in the press that the government may be perhaps working on a new development financial institution. I have no knowledge about it, but I very much hope that it would be there, a government initiative either in the budget or outside the budget because I believe Indian industry needs long term patient capital. And long term patient capital must come from a development financial institution, it cannot come from the banks, you will have an asset liability mismatch which will create a lot of problems. One of the big problems for a DFI was the resources. But if you see FIs like the Power Finance Corporation, the REC, many of us, we have been raising bonds in the market without any problems. If cost is the issue all we need to do is allow them issue tax free bonds. Let’s assume a 20 year tax free bond can be issued in the market today very comfortably for even 5%. So what is the government sacrificing, on a 5% coupon the government is sacrificing at the marginal rate of tax Rs 1.50 paise per Rs 100 of the bond. It is nothing for the government. Even if you say it is over 10 years that’s Rs 15 on Rs. 100. But that Rs. 100 bond will create the kind of investment plant and capacity which will generate employment, it will generate economic activity, it will generate GST, it will generate income tax which revenue. 

So I would be very much looking to see new developmental financial institutions empowered to raise resources through tax free bonds and any other long term bonds and funnel that into development of the industry. 

The second thing I would like to see is the greater emphasis on research and development, you talked about Indian exports, you talked about Korea. Let me just give you a statistic, R&D expenditure in the Indian economy is I am sorry to say pathetic, and it is done almost entirely by the government. The private sector, the pharmaceuticals and a few other industries is not really present there, there aren’t the kind of academic linkages you see in other countries. R&D as a percentage of GDP is less than 1%. Now in Japan the same figure is 3.2%, in Germany it is 3%, in USA it is 2.8%, in South Korea and you talked about South Korean exports, South Korea the number is 4.8%. Where is 4.8% and where is less than 1%?

If we have to have our exports moving up the value chain we have to be investing in R&D. Our exports of R&D intensive products, high technology products must go out. Now our share of high technology exports in our export basket is just 9%.  For Korea the number is 36.3%, for China it is 31.4%.  So that is my dream a greater focus on R&D, maybe a tax incentive for R&D expenditure, or other incentives. There are various ways of doing it, accelerated depreciation, effort revenue expenditure, there are various ways of doing it. But I would love to see a greater emphasis of R&D support in the present budget. 

Manish K Jha: By the way, we always say our economy resisted recession a couple of times in the past, because we were sort of immune to the global trade system basically. How flawed is this logic, because if you see this Covid19 induced lockdown period, our economy plummeted a historic low while other economy did not collapse the way Indian economy collapsed. Were we boosting about our financial institution and foundation which we have? Do we need to reopen up and relook at our financial institutions especially what we have witnessed these days during Covid 19?

David Rasquinha: Actually I would probably disagree when you say that the Indian economy collapsed much more than other countries I would strongly disagree. The first quarter of the year, yes, because we had just the first quarter and there was a sharp plunge and I think the numbers were minus 23 of something. But if you remember the second quarter it changed to minus 14. That means you actually had a growth in the second quarter. So the classic definition of a recession is two consecutive quarters of negative growth, this was not so, you had a drop in Q1, there was an improvement in Q2. It is still negative because of the extent of the drop but you have actually had an improvement. So most people seemed to have missed the simple fact that what actually happened was an improvement in Q2 over Q1. And I am sure with the Q3 numbers coming out they will probably be released next month I guess, you will see a further improvement. So no question of India being in a recession or anything, even the classic economic definition is not, when it comes to the drop in economic activity inevitably, I mean Covid when you have the lockdown, manufacturing is going to be impacted, services are going to be impacted. But see the benefits we have got out of that. The impact of Covid in India has been I would say light, I don’t want to make some, I mean there happened to be some very regrettable deaths I am not trying to anyway kind of minimize the impact but if you compared the impact in terms of infections, of fatalities, vis-à-vis the USA, vis-à-vis Europe I think we have done extremely well and I think we should thank our doctors, our manufacturers, the lockdown which enabled us to segregate and minimize infections, I think we are not giving enough credit to all the policies about that for controlling lockdown. Now if you look at it the economy is opening up as I said in EXIM, I am sure in many other Indian companies, we are traveling again, we are meeting customers, flights are full, I just returned from Delhi yesterday and I was in a full flight, yes, of course, we had to wear masks, we had to wear shields, those are minor inconveniences. I am extremely bullish on where we are going here. 

Manish K Jha: We cannot avoid comparison with China in terms of its success in global market while not denying the nature of the regressive political system. We are targeting 8 and 10% to become a 5 trillion dollar economy by 2025. Are we in any way closer to reaching the target, you think it is a big economic policy shift and thrust needed in the area of export on broader policy aspect?

David Rasquinha: I think many of these policies have already been started and yes, we would welcome new policies also. I spoke at R&D, I spoke about patient capital. I am sure there are many other measures which are being contemplated by the government. But on a comparison with China there are things which were done in a let’s say a non-democracy which would never be done in a democracy. Whether it is the control of the communist party over the corporate sector and you are seeing examples of Ant Financial and Jack Ma fresh in our minds, the way the, let’s say the outbreak of the virus in Wuhan, the way it was handled whatever you compare I will put it this way, I am very delighted to be an Indian in India, whatever the comparison you make.