Column: A bottom-up approach to reforms

By: and |
Published: November 24, 2015 12:31:57 AM

Ground-level reforms will address bottlenecks in each sector, leading to ease of business in a uniform manner

The recent past witnessed two big bangs: One out of Bihar and a ‘bahari’ out of Delhi—the FDI announcements. Both were timed to perfection with Diwali, setting off fireworks. Liberalisation of investment rules and announcements of major macroeconomic reforms are aimed at achieving key objectives of policy across sectors. But what is essential is effective implementation, which holds the key since there are bottlenecks and ground realities that have to be effectively dealt with.

This is evident from experience in critical sectors.

Electricity: Open access, promised under policy and law, has failed in practice. Fuel shortage, inadequate transmission capacity and revenue gap suffered by distribution licensees have hurt the sector.

Telecom and tower infrastructure: The availability of spectrum is an issue as India has amongst the lowest average spectrum per person. Right of Way (RoW) issues when laying cables and setting up towers is an impediment. Tower infrastructure, a lifeline for rapid growth of telecommunication signals, requires interface with several state and local authorities for numerous permits and approvals. Telecom and towers are like essential services and the government/licensor must ensure protection of assets from any form of interference.

E-commerce: The sector, which transcends state boundaries, suffers from ambiguity in policy. The absence of a clear definition of an online market has resulted in taxation-related issues in several states.

Oil & gas: In the oil & gas sector, the government must allow prompt upfront investment, with self-certification rather than red-tapism, which stalls/delays investments. This will give a big boost to energy security. An open exploration policy will pave the way for attracting long-term investment. Blocks allotted to investors must be used till the end of economic life. Extension of licences must be granted well in advance to bring stability and certainty, an incentive for continued investments in the sector.

Overall, the infrastructure financing gap should be addressed by fixing bad loans and NPAs so that banks and institutions can provide full and timely finance; and the government should contribute to creating public infrastructure.

Smooth implementation of policy requires an out-of-the-box and innovative approach, which includes:
* Tailor-made/customised implementation for major players in each sector, with a designated officer to do spadework on their behalf to fast-track processes.
* Strengthening the FIPB by having independent sectoral experts on board and making time-bound decisions.
* Statutory protection to secure investor’s rights, which will ensure capital inflows.
* Empowering businesses and industry (as was the case for the IT industry) to function on auto-pilot/hands-off basis with least intervention or interference to get the full mileage and benefit of government policy.

The best example is from Pudong, a district of Shanghai, where the local administration has a system which is proactive and does away with procedure. If a factory/unit is to be set up, all that a company has to do is to fill up a form, providing details pertaining to the requirement of land, water, electricity, labour, roads, etc, which is submitted to the authority. Within 15 days, the local authorities put together a package to meet the requirements.

This fast tracks construction within weeks.

It seems unbelievable but the government can ‘just do it’, which will truly signal that the policy/system works at the ground level.

* To iron out the creases, the government must have an open channel for constant feedback from the ground. A single point of interface with various authorities—a nodal officer or an Ombudsman—will send out the signal that the government can proactively help industry to resolve matters and find solutions.
* In sectors where FDI is permitted and limits have been enhanced, independent regulators must put in place impartial and fair decision-making processes to ensure level-playing field conditions. This will go a long way in boosting investor confidence and reviving the investment cycle.
* Wholesale announcements of reforms require full support at the state and district levels to send out a clear message that it is ‘back to business’. In a 2014 report on best practices to Improve the Business Environment across

India, commissioned by the Department of Industrial Policy and Promotion (DIPP), the six select best practices are the integrated and comprehensive system for managing indirect taxes in Karnataka; labour management solution by Maharashtra; single-window clearance for industries (MAITRI) by Maharashtra; land-related interventions in Gujarat; implementation of e-Governance in pollution in Gujarat; and single-window clearance mechanism in Rajasthan and Punjab. These best practices should be adopted/replicated on a ‘copy cat’ basis at the national and district levels for maximum mileage.

Governments must throw their full weight to address ground realities so that it ‘trickles up’, as ground-level reforms will address the bottlenecks in each sector, leading to ease of business in a uniform and standardised manner and will translate the policy initiatives to reality. This will ensure that investors are not stressed or stranded after investing and the disjunct between expectation and reality is met.

Disputes have had an effect on the flow of investments, but two recent ordinances that set up commercial benches/courts and amended the Arbitration and Conciliation Act, 1996, will deal with commercial disputes in a time-bound manner, paving the way for quick and effective solutions.

The government has significantly improved the policy environment, but the true measure and barometer of its success will lie in implementation of reforms in letter and spirit, which requires convergence and complete harmony between policy, regulation and contract/licences. In this fashion, a big-bang from the bottom can meet the big-bang from the top, and it is at this point of intersection that the recent initiatives taken by the government will be bang on target.

Gopal Jain is senior advocate, Supreme Court of India, and Chinmayee Chandra is an advocate

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