Column : NIB needs to include the states

Written by Ajay Dua | Updated: Dec 13 2012, 09:23am hrs
In an endeavour to boost investment, the finance ministry has proposed creating a single window within the central government for according faster clearances to large projects. Not fully convinced about setting up a new body, viz the National Investment Board (NIB), and with more than one other ministry not particularly enthusiastic, the Union Cabinet has withheld its approval. Rightly so, it suggested further interdepartmental deliberations both on the content and form of the new structure.

Rising and high domestic savings as well as investment rates have been the hallmarks of the Indian growth story. Four years ago, in 2007-08, before the global economic slowdown began, the investment-GDP ratio had risen to 38.1% and GDP growth rate had exceeded 9%. In 2010-11 and 2011-12, it declined to 34.7%, and economic growth slowed to 8.4% and 6.5%, respectively. Between 2004-05 and 2010-11, the average gross domestic capital formation (GDCF) increase was 14.1% per annum while GDP growth averaged 8.4%. Ever since the April-June quarter 2011, it has steadily fallen, and in the first half of current fiscal, it was an abysmal 2.3%, with growth falling to a three-and-a-half year low of 5.3%.

Kick-starting economic revival through stepping-up investment is a pre-requisite and fast tracking the approval system is certainly called for. The proposed new structure reflects the realisation within the government for initiating such action. All central projects with an investment exceeding R1,000 crore are sought to be cleared by a three-member NIB chaired by the Prime Minister (or the Cabinet Committee on Investment which has been suggested as its alternate nomenclature) in case the concerned ministries and other authorities have not approved these within the prescribed time limits.

The finance ministry has enumerated 89 such projects that have not got off the ground for want of requisite approvals. Last week, the finance minister had also informed the Rajya Sabha that such focal points for granting clearances were in place in countries such as Japan, Indonesia, Malaysia and Thailand. Hopefully, creating a single structure should help India improve its position from 132 in the list of 185 countries covered in the Doing Business 2013 report of the World Bank. Even Sri Lanka (81), Pakistan (107), Nepal (128) and Bangladesh (129) have been consistently placed higher than India.

The new proposal has run foul of the ministry of environment and forests, which has alleged that NIB might sidestep statutory and other environmental clearances for mega projects, and benefit only the large developers. Its minister has voiced reservations about redressing concerns of project-affected persons once her ministry is bypassed and matter taken up directly by NIB. In fact, she fears that her ministrys working could even get jeopardised in the process. The ministry of mines has observed that unless state governments are made an integral part of the new institution, the exercise would not remain meaningful.

Associating states with according project-approvals is certainly needed. Most mega projects are likely to require a significant quantum of land, water, electricity, etc, in provision of which state governments play important role. It is well recognised that while the central government may have, over the years, liberalised its policies and regulations and is becoming industry-friendly, it cannot be so said about all the states. Apart from play of partisan-politics, many a local vested interest can stall projects of national importance. Also, grant of environmental clearances by the Centre is often dependent upon recommendations from state governments. In fitness of things, all chief ministers should be ex-officio members of the Board and for proposals involving their states, the concerned chief minister should invariably be its constituent. This would give a sense of ownership to the state government even though the project might be of central government or one of its PSUs.

As NIB, a pertinent question to ask is why similar-sized projects being developed by state governments should not be brought within its ambit. To enable state governments to secure sanctions for such projects, as in the case of central projects, a host of state and central approvals are needed. By including these in the scope of NIB, state-level investments would get a fillip much like the federal projects. There are several large highways, metro-rail, power and irrigation projects of state governments which have been delayed for want of such clearances.

In a similar vein, it must be considered whether the overall investment rate in the economy can be significantly raised without hastening private capital formation. With government no longer having the objective of being in commanding heights of economy and increasingly economic space being made for the private sector, the need of the hour is stimulation of non-governmental investment. Fall in GDCF in the last four years has been entirely due to the dithering by private entrepreneurs who in the engulfing environment of fear and uncertainty are holding themselves back. This is probably what Ratan Tata was alluding to in a recent interview to the Financial Times in which he complained of undue delays of clearances for many of his groups new ventures.

According faster clearances and approvals is one thing. What the high-powered NIB must also look at is doing away altogether with many of these and putting most on a self-certification basis. The World Bank report that has given India a lowly position has enumerated 58 procedures to be complied with by a new business before it can start work. It takes 11 months for a business in India to get the permits for incorporation, commencing construction, obtaining electricity and registering property. For larger projects, which also need environmental and many other clearances from various tiers of government, the wait is much longer.

Undoubtedly, the proponents of creating the new body are aware that many of the clearances to be accorded are statutory and unless the relevant laws are amended, the authorities empowered to grant these cannot be altered. Amending the rules for the conduct of government business can at best take care of assigning NIB the responsibility for grant of administrative clearances. Similarly, to avoid ruffling too many feathers, giving financial sanctions should continue to remain with entities like CCEA, CCI, administrative ministries and Boards of Directors of CPSUs. NIB, with its secretariat preferably in the Prime Ministers Office, could take care of the numerous clearances needed before the final go-ahead is given by the authorities currently empowered to do so. Equally important, it should concern itself with monitoring the implementation of all large projects and ensure full coordination amongst agencies both at the Centre and in the provinces. Timely execution is perhaps of more consequence than securing approvals to commence a project.

The author is a former secretary in the Union ministry of commerce & industry