Column: Clear the haze in policy environment

Updated: Mar 11 2014, 08:55am hrs
Timing is always critical and even more so when it comes to legislation. Perhaps, our legislators should consider this, as the timing of the various legislations being notified and brought into force is, hardly ever, apt.

Take the case of the new company law for example. A few sections have been notified with no clear indication of when the other provisions will come into force. We have sections and rules being notified in fits and starts, with the industry grappling with compliance and confusing interpretations. The FDI policy pertaining to multi-brand retail is yet another instance of implementation of a policy in bits and pieces and it may be apt to use this example to describe the state of affairs.

In September 2012, the government permitted FDI in multi-brand retail, trading up to 51% under the government approval route and the policy was introduced as an enabling one. State governments and union territories were given the freedom to take their own decisions for implementation of the policy. A list of states in agreement with the policy was included. Other states could agree with the policy going forward. Towards this, the states would require conveying such agreement to the government of India through the appropriate department, upon which additions would be made to the annexed list.

Subsequent additions to the list did take place. However, they reflected more an extension of a political mindset rather than a policy success of one state being adopted by another state. This was emphasised by what followed next. Early this year, states which had originally adopted the policy began to seek withdrawal. Again, this did not reflect a failed policy. The withdrawal seemed more a political agenda to blindly reject a preceding government's decisionor maybe, motivated by a perceived political benefit, given the forthcoming elections. Withdrawal from the policy was projected as a measure to protect the interest of the smaller shopkeepers from the retail chains.

Interestingly, we have not seen any foreign direct investment post the opening up of the sector. But then it would be unfair to argue against a potential investor who finds no firm ground. The investor faces the risk of policy withdrawal; the real, on-ground consequences of a fairly successful negative campaign against the sector; and his/her projection as someone whose sole intent is to make profits by depriving the smaller, standalone shops of their income.

The readiness of an investor to come forward and invest in the country amounts nearing $100 million merits no favour. The conditions that a foreign investor is required to satisfyconsidered challenging by the investorare projected as a benefit afforded by the government and a compromise for the public at large.

There seems to be no thought given to what recourse would be available to an investor who has made huge investments in a particular state from which the policy is subsequently withdrawn.

What appears to be clearly lacking is the basic tenetcertainty and directionthat guides the introduction of a policy. The present situation clearly projects a sorry image of the country to the global investing community. It would appear that policy decisions are more a factor of whims and fancies than considered actions conducive to economic growth.

What we need is an evaluation at the highest level of what would suitably support the growth of the economy, i.e., a directional reform. That trajectory is to be followed independent of every other factor. This would not only ensure that we march in the right direction but also do so at the appropriate time.

Irrational actions take us to the pre-liberation days and are best avoided, unless, we as a country care little.

A simple, clear policy furthering the directional reform would do a world of good to the economy.

While we eternally hope for solutions at a macro-economic level, what the big retailers may be looking forward to could be the forthcoming general elections, with the potential that our country holds despite such continued policy paralysis being the only reason.

Hopefully, things will be in place before luck and potential run out!

Raj Ramachandran

The author is partner, J Sagar Associates. Views are personal