The Hindu Business Line : Improving India's investment climate

The Centre is earnest in improving the investment climate by bringing in more foreign direct investment and facilitate investors to go ahead with their projects by removing administrative hurdles, says G. Srinivasan.

WITH the focus now shifting to serious economic reforms, the Centre is determined to bring in more foreign direct investment, and effect distinct improvements in the investment climate by removing administrative hurdles.

At the National Development Council meeting held in the capital recently, the Prime Minister, Mr Atal Bihari Vajpayee, made a specific reference to the "inefficiencies and harassment at the business-Government interface", and how an exercise has been initiated to overhaul the process of project preparation and approval for publicly-funded projects in both physical and social infrastructure domains. The Government foresees significant reduction in time and cost overruns in the implementation of schemes and projects once the overhauling gets under way.

The genesis for this salubrious thinking can be traced to the two reports submitted by the Department of Industrial Policy and Promotion Secretary, Mr V. Govindarajan. These reports referred to investment approval procedures (government and public sector projects), and also downstream issues (implementation and operation). The nub of these reports is that there is an urgent need to recast the project approvals and regulatory framework with a view to speeding up the process, and ensuring that scarce resources are not frittered away in duplication and abandonment of projects on which considerable outlays had been spent. The first report largely focusses on the various upstream issues that supervene from conceptualisation to investment approval. The second scans various downstream issues hampering project implementation — that is, issues that emanate from investment approval to implementation.

The Govindarajan Committee reports unequivocally identified poor quality of project formulation and appraisal as a major roadblock in timely execution of projects, besides delays in approval and obtaining requisite permissions for implementation. Failure to identify upfront and address issues, such as land availability and social impact, affect project implementation at a later stage. The report said regulatory and reporting requirements under different Acts demand prolonged interface between the authorities and the project managers. A study jointly conducted this January by the CII and the World Bank on "Competitiveness in Indian manufacturing" revealed that about 16 per cent of the management time in India is spent on dealing with government officials on regulatory and administrative issues. This compares "poorly with Latin America and OECD countries and China".

It is interesting to note that responses from the firms also show that the frequency of visits by regulatory authorities differs according to the investment milieu in the States. Thus, States with better investment climate tend to impose lesser burden on the management than the others. The average number of visits per year by the government officials has been as low as 5.5 in Tamil Nadu and 5.9 in Delhi compared to 13.4 in Andhra Pradesh and14.9 in Punjab. Uttar Pradesh accounts for the highest average number of visits per year by government officials at 43.1 whereas the average for the 10 surveyed States is 11.5. While the average regulatory burden on small and medium enterprises (SMEs) is less than the larger units, the regulatory burden per employee is over 14 times more in the SMEs compared to large units, attesting to the undeserved harassment being suffered by the latter.

The Committee has suggested that a Project Appraisal Unit be set up in the Planning Commission as the primary appraising agency for all public projects entailing investment of Rs 25 crore and above, and also those from navaratna/mini-ratna public sector enterprises involving budgetary backing, or contingent liability on the government's part, or beyond their approval authority. If only the Plan panel functionaries do not resort to dilatory tactics like other administrative babus, this suggestion could be given a try for assessing the techno-economic viability and subsequent sustainability of the projects.

The Committee's suggestion that the requirement of pre-PIB (Public Investment Board) approval might be dispensed with for projects up to Rs 500 crore is a sound one, as it avoids duplication.

The second report, which deals with downstream issues of implementation and operation, asks the authorities to act fast with tact if they intend to clear the decks and cobwebs surrounding the bureaucratic procedures and plethora of laws that a project executor has to comply with.

The Committee concedes that complexities in the approvals required for primary resources, such as land and power, multiplicity of approvals, and disproportionate levels of details sought with applications remain the major hurdles in the execution of projects. In this context, the Committee emphasises the re-engineering of regulatory processes prescribed under various legislations, regulations to simplify the procedures for grant of approvals, reducing delays and ground-level hassles. Rightly, the Committee calls for swiftly setting up re-engineering groups in the Ministries of Labour, Environment and Forests, Power, Agriculture, Petroleum and Natural Gas and DIP&P where the interface between the babus and people is inevitable and time-consuming. It also underscored the need for a similar re-engineering of the States' regulatory processes. One could only hope that the re-engineering group in these sectors come out with concrete remedies to the maladies afflicting project design and implementation so that the second generation of economic reforms, on whose success the 8 per cent GDP growth of the Tenth Plan is latched, gets on track.

The suggestion that assistance under different reform-linked incentive schemes may be dovetailed — thereby giving a monetary fillip for re-engineering the regulatory processes in the States with clearly identified infrastructure components/projects — will help improve governance at the state-level.

The Committee further says empowering the Single Window System at the State-level, and re-engineering regulatory processes will have the maximum impact on reducing delays. In this context, the Committee suggests that States might weigh various alternatives — enactment of legislation and amendment of rules of business for empowering specially constituted bodies to operationalise and empower the "Single Window System".

Also, the suggestion to introduce Single Composite Application Forms (SCAF) to facilitate approvals of large and medium projects from a single point with an agency at the State-level responsible for development, implementation and follow-up of clearances is laudatory.

In these days of deregulation when there is no longer any "inspector raj", the Committee's recommendation for clubbing duties of different inspecting authorities from different departments to whittle down the multiplicity of inspecting authorities in the States is a salutary one, and needs to be implemented.

In all these suggestions, the underlying message is that the authorities are earnest in improving the investment climate, and helping facilitate investors to go ahead with their projects. This is also a point rammed home convincingly by the latest report of the World Bank, Global Economic Prospects and the Developing Countries. The Bank rightly says that "many developing and transition governments fail to recognise that firm births and deaths are an inevitable corollary of entrepreneurial risk-taking. Instead, those governments erect a maze of administrative obstacles to starting, operating and closing firms".

The report contends that policy barriers to competition — impediments to trade, restrictions on incoming foreign investment, administrative barriers to competition or monopolies granted to state enterprises — have channelled domestic and foreign investment into less-productive activities that dampen productivity improvement and hobble growth. It is time India took serious note of these suggestions, and the two reports of the Govindarajan Committee are but only a beginning in this direction, a beginning that is replete with positive results if the authorities act upon them decisively.

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