Revival of the investment cycle will require a concentrated effort from the new Central Government. High fiscal deficit has reduced the Government’s ability to provide incentives or contribute towards investments. Under the circumstances, removing hurdles faced by projects will help.

Poor capacity utilisations in industries, such as capital goods, cement and automobiles, have led to slowdown in new investments. Oil and gas has been hit by policy uncertainty. No fresh investments are happening in refining, petrochemicals and pipelines.

Most sectors, except infrastructure, currently have overcapacity which is reflected in the inflation of manufactured products that show a complete collapse of pricing power.

As such the revival cycle has to be led by renewed consumer and investor sentiment as well as investments in infrastructure projects.

The first step Huge delays in approvals make projects unviable. The first step towards reviving investments is to clear projects at a rapid pace where the onus should move on to the approving authority.

The land acquisition Bill is another major impediment for investments, not in terms of cost as actual land prices in most areas are already much higher than collector rates. However, the rules are onerous.

The steel and aluminium sector, in which India is competitive in terms of cost of production and hold potential to attract huge investments, has been hit by the ban on iron ore mining, Coalgate, land acquisition and environment clearance issues.

Private power producers need relief in terms of tariff relaxations. The demand by IPPs/UMPPs for Rs 0.5-0.75 relief a unit in most cases is miniscule when compared to the peak domestic power rates of Rs 8-10 per unit.

Relaxed environmental norms Environment clearances need to have a deadline. We have moved towards one of the most stringent norms even at a low level of development.

As they say, Heavens will not fall if we relax environmental regulations for a fixed period till time-bound norms are finalised.

Subsidies The next Government will need to implement market-driven fertiliser and fuel pricing. Though inflationary in the short run it will create a huge investment cycle by making these projects viable. It will free up resources and reduce the fiscal deficit by 1.5 per cent of GDP.

This will reduce domestic interest rates and attract foreign capital into the country. Sovereign rating will, in all probability, be upgraded and start a virtuous cycle

Road projects Road projects are hugely positive for the economy as they generate large employment; require lot of inputs and machinery. Last year, National Highways Authority of India could award just 1,322 km against a target of 9,500 km. Easier exit norms, post-completion of projects combined with proper evaluation of bids, can help attract private equity.

An award of 8,000-9,000 km of projects a year will lead to an investment cycle of Rs 1,00,000 .

Agriculture Supply constraints need to be addressed, especially in agricultural produce where an estimated 33 per cent of the perishable produce worth Rs 2,00,000 crore gets destroyed.

APMC needs to be made optional and a the network of middlemen needs to be curtailed. There is need to set up food processing units, modern cold storages and transportation networks. The total storage capacity in the country currently is just 30 tonnes. Estimates indicate a requirement of another 37 tonnes requiring an investment of $20 billion. Urban infra projects

Projects, such as metros, overhead road/rail networks, water and waste water units are easier to execute as they do not have land acquisition issues. An initial focus on these could contribute strongly to investment revival. For example, metro projects in 20 cities would involve a layout of Rs 2,00,000 crore.

Investment in coal mines is the easiest to revive as monetary investments are low. This sector has been the worst hit due to the Coalgate and environmental activism.

Mining Coal imports currently exceed $10 billion and can easily be replaced with domestic production. It will go a long way in reducing power costs and reviving the economy. Coal India’s monopoly needs to be revoked at the earliest. Coal prices can be benchmarked to global levels and mines opened up to private companies. Similarly, iron ore mining can restart in a big way from 2014 onwards.

Except for the fuel and fertiliser subsidy, none of the other steps is politically unpalatable. We need a revival in investor confidence and a focused approach on awarding and implementing projects. The economy can revive rapidly; it’s only a question of confidence.

A stable external situation and improving fiscal situation should take growth back to the 7-8 per cent range in the next two years.

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