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Saturday, 31 December 2011 00:00
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Policy paralysis, stuck projects and government going after a few projects have corporate India fuming



* “I must confess that it is a little disappointing to sometimes hear negative comments emanating from our business leadership or be told that government policies are causing slowdown and pessimism in the industrial sector.”

– Manmohan Singh, Dec 22, 2011


* “If we have problems, it is for us to solve them. Merely reiterating the distressed condition is not going to help us.”

– Pranab Mukherjee, Dec 23, 2011


In 2009, when Anil Ambani unleashed an ad campaign that suggested the government was helping Reliance Industries, most were shocked by his effrontery. In 2011 when, on successive days, both the Prime Minister and finance minister had to admonish India Inc for going public with its criticism of the government — no specific charges were levied, just a general admonition about policy paralysis — no one was shocked. If anything, the view was the government was being churlish.

It all started off with Deepak Parekh, that doyen of private banking in India, writing a letter to the Prime Minister along with Wipro’s Azim Premji, Mahindra & Mahindra’s Keshub Mahindra and Thermax’s Anu Aga on how the government wasn’t going ahead with policy reforms and that large projects were stuck. Three months later, this was followed up by another letter saying much the same thing. “There are 32 Bills in this Winter session of Parliament for consideration and passing, many of which are of far greater consequence and importance for the country than foreign direct investment (FDI) in retail. The protests on FDI in retail are misconceived and unfortunate, but hope to salvage this situation should not be lost,” the letter had said.

In between all of this, when his hill-city project got in Jairam Ramesh’s crosshairs, Ajit Gulabchand retaliated by filing a case in the Bombay High Court questioning whether the central government had any jurisdiction on his project — Ramesh, of course, got his own back when he got the Maharashtra government to file charges against Lavasa as a precondition to his clearing the second phase of its construction. Others like Anand Mahindra weighed in on the Anna Hazare movement (“The anti-corruption sentiment is not a whisper — it’s a scream”), as did Kiran Mazumdar-Shaw (“PM’s words are of no avail — he has unfortunately lost credibility — his statement is a case of too little too late”).

Fed up of what he considered to be the government acting unfairly on his KG Basin operations, Reliance Industries chief Mukesh Ambani sent out an arbitration notice to the government and a rattled government is now trying to buy time to respond on the issue of whether the government should try and get back some of the funds spent on the KG Basin project. The government view was that since the money had been spent by Reliance, and reimbursed by it, on the assurance that a higher output of gas would be available, perhaps the money needed to be refunded — when this was put to the solicitor general, he opined that arbitration be resorted to, but the government never sent a notice, instead Reliance did. Quite a difference from the days when companies waited for government notices before they reacted, and even then, the attempt was to resolve things behind closed doors.

Part of this public display of frustration has to do with the fact that India Inc seemed to believe the 9% growth was an inalienable right — after all, Goldman Sachs had done two full reports on it, sketching out the timelines for India to overtake Japan (20 years) and even the US (40 years). The difference between the first and the second reports was that the second shortened the timelines.

How could anyone, India Inc seemed to argue, interfere with destiny, least of all the RBI which suggested that India had a lower optimal growth ceiling — anything above this would lead to inflation and so had to be crushed through interest rate hikes.

The RBI, of course, was only one part of the battle — economist Surjit Bhalla’s model shows a 1 percentage point lowering in real interest rates leads to, through stimulating investment and consumption, a 0.6 percentage point hike in GDP growth. The larger issue of ‘policy paralysis’ is interlinked with Parliament not functioning and Bills not getting passed, but industry has lived long enough with Bills not getting passed and has continued to invest with gay abandon. A larger part of the pent-up anger was to do with big projects just getting stuck on the ground.

There were, to begin with, environmental issues, but the political overtones seemed quite problematic. So, the environmental permission being turned down for Vedanta in Niyamgiri happened the day Rahul Gandhi arrived there to tell tribals he had saved their mountain. In the case of Posco, one of Orissa’s biggest projects, one of the reasons cited to deny permission was that the project authorities had made no attempt to identify and resettle tribals. Turned out, and the ministry accepted this, that the area was an urban one and so was not the natural habitat of tribals.

Nor were problems restricted to just the environment ministry. While the commerce ministry was batting for SEZs and the government as a whole passed the SEZ Act, the finance ministry managed to put a minimum alternate tax (MAT) on it. When Cairn was selling out to Vedanta, the government refused to clear the sale until the company agreed to paying part of the royalty on its oil production — while it is true ONGC was paying more royalties on the Barmer project than it was earning, the fact of the matter was that ONGC had signed an agreement to pay the royalty. So the government leaning on Cairn was quite illegal.

In the case of 3G intra-circle roaming contracts — even if Idea doesn’t have 3G spectrum in Delhi, for instance, it can tie up with Bharti Airtel or Vodafone to use their spectrum to offer its subscribers 3G services — what happened was even worse. Apart from the fact that the licences permit such roaming, telcos specifically asked the government whether such roaming would be allowed. This was done before last year’s bidding for 3G and the government said it was allowed, in writing. Despite the fact that the companies paid R68,000 crore for the spectrum and another R15,000-20,000 crore to roll out their networks – and there is no revenue loss to government either — a decision has been taken that such licences are illegal.

To add salt to injury, the government behaved as if the telcos were common criminals — at 5.15 pm on a Friday, after the courts had closed for the day, notices were issued asking these firms to cut off the intra-circle roaming facilities. The treatment recalled the way criminals were arrested in the past, on Friday after 5, when their lawyers can’t post bail, so that the cops could force out a confession, with third degree if need be, over the weekend.

If India Inc still doesn’t trust the government, keep in mind this happened a day after the PM told industry that its legitimate demands would be heard and grievances addressed.



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