|Monday, 17 October 2011 00:00|
Too many big investment projects in trouble
The details of what transpired at Saturday’s meeting between the PM and his economic think tank are not available, but there has been a sharp deterioration in the country’s economic situation over the past few months. While it looks likely RBI will keep hiking interest rates, preferring stagflation to inflation, industrial investments have ground to a halt. According to CMIE data, quarterly investment proposals have fallen from R7.2 lakh crore in June 2010 quarter to only R2.6 lakh crore in September 2011 quarter. Given how most major investment projects are running into problems, it’s not certain investors are going to return in a hurry. Cairn, Qualcomm, 3G … the list of high-profile projects in trouble is a long one. The latest in this strange chain of events is hill station Lavasa where, after stopping work on it for 11 months, the government has once again denied it permission—this time, one of the major reasons cited, is that the case is sub judice. Lavasa went to court saying the central government’s actions were illegal; since the case is pending, the government is using that as a reason to not clear the project!
Even more bizarre is what’s happened on FDI norms. A circular from the industry ministry has said any FDI that has options built in is to be treated as an external commercial borrowing (ECB). On the face of it, this is to prevent ECBs—not allowed in real estate, for instance—from masquerading as FDI. It is logical to apply this in places where the options guarantee a fixed return—the shares will be bought back at a certain price after a certain interval. But the language is so broad, it covers all manner of other options as well. Insurance JVs, for instance, have options that allow foreign partners to buy shares in the JV once the government raises the FDI limits—in this case, shares are to be bought at a fair market value. These cannot, under any circumstance, be considered ECBs, yet that’s what the circular has done. Is someone in the government monitoring such developments, or are babus in various ministries just being given a free run?