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Unveil Industrial Policy to Promote Unhindered, Efficient Production

SEPTEMBER 06, 2017

By Naresh Minocha, Consulting Editor

DEMONETIZATION-battered Modi Government appears to be in search of Aladdin Ka Chirag for ringing in elusive double-digit growth. Its move to draft a new industrial policy reflects this quest.

"A comprehensive, actionable, outcome oriented industrial policy will enable industry to deliver a larger role in the economy; to fulfill its role as the engine of growth and to shoulder the responsibility of adding more value and jobs", says the 'Industrial Policy - 2017 A Discussion Paper' released by Department of Industrial Policy and Promotion (DIPP) on 29th August 2017.

The discussion paper (DP) might put off Aladdin as it is mishmash of "Illustrative outcomes and questions that trigger the search for solutions". Had DP authors done some additional homework, they would have found solutions to all their questions in official documents including reports of expert committees one of which was specifically appointed by DIPP.

DP does not articulate policy objectives. It is deficient in offering credible solutions to major problems that delay projects, erode their competitiveness and curtail scope for productivity increase.

DP does not provide assurance to investors against risks such as retrospective Raj unleashed by Government. The new policy should promise not to hurt/kill a greenfield project with duty-free imports under a new free trade agreement (FTA). Assurance is the key to attracting and sustaining investments in highly uncertain times.

It is here pertinent to cite Prime Minister Pandit Jawahar Lal Nehru's statement on participation of foreign capital delivered in the Constituent Assembly on 6th April 1949.

Listing three-point foreign direct investment (FDI) de facto policy, Mr. Nehru stated: "The Government of India have no desire to injure in any way British or other non-Indian interests in India and would gladly welcome their contribution in a constructive and cooperative role in the development of Indian economy".

DP should have thus listed a set of assurances that would comfort wary & let-down investors.

DP has ducked core concern of the industry- the regulatory fickleness; fiscal flip-flops; inter-ministerial clashes that create unwarranted business risks and the Executive's propensity to cede policy turf to the activism-obsessed Judiciary.

The risks include 1) price & marketing controls; 2) unfair surge in cheap imports from a country with which India signs a free trade agreement (FTA); 3) mid-stream changes in rules and taxes that make projects unviable and 4) public interest litigation (PILs) that often change the viability and survival of fully approved projects.

Before discussing DP further, a bit of historical perspective is called for. The New Industrial Policy, if unveiled, would replace the big-bang policy that unshackled the industry from licence, permit quota raj in July 1991.

Prior to that, we had seven industrial policies that were unveiled in 1990, 1980, 1977, 1973, 1970 and 1956 and 1948. In addition to this, there have been certain other major & minor changes in industrial policy over the years such as the ones 1984 & 1986 under Rajiv Gandhi Government.

We should also not overlook the importance of sector-specific policies especially the ones that opened floodgates to private and foreign capital. Factor in also the industrial policy of each State Government.

Notwithstanding the policies galore, India has failed to emerge as industrial powerhouse on the global turf due to complex interplay of political, bureaucratic, corporate lobbying, social and economic factors.

Being an umbrella policy, industrial policy should facilitate supply of land, water, minerals and other inputs to industries at prices that do not make them globally uncompetitive.

DP is completely silent on scarce land and water, for which there is conflicting demand, resulting in bloody resistance from project-affected people. DP has only dealt with two other traditional factors of production- labour and capital.

The proposed policy thus must tackle the comparative disadvantage suffered by industries in purchase of costly natural resources & energy as compared to their counterparts abroad.

Take, for instance, the electricity and rail freight charges. These are higher as utilities cross-subsidize supplies to politically-sensitive consumers.

"The practices of cross subsidizing domestic and agricultural consumers by charging higher tariffs on commercial and industrial customers has also adversely affected industrial production in India," says Parliamentary Standing Committee in its report on 'Industrial Policy In The Changing Global Scenario' that submitted its report in December 2016.

Industries also pay higher prices for purchase of petroleum-derived fuels that have been excluded from GST ambit to allow the Centre and States to continue taxing them exorbitantly. The cost of indigenous minerals has also shot up due to new imposts under new mineral policy and due to auctioning of mining rights.

The Centre and the States must thus arrive at common meeting ground as far as taxation of natural resources and energy is concerned. Without consensus on this issue, no industrial policy can delivere the desired outcomes.

The political executive must realize that cost disadvantages have slowed down investments in capital and energy-intensive industries. These adverse factors would certainly deter inflow of foreign investments in 'Make In India' initiative in metallurgical and chemical industries.

The New policy should create a 100% level-playing field for all – private, public and cooperative sectors. It should guarantee industry-neutrality to facilitate free flow of capital across the entire business spectrum.

DP has also failed to record the fact that controls over the industries have shifted from DIPP to Ministry of Environment, Forest and Climate Change (MoEF&CC) over the years.

The environmental controls are far more dreaded and multiple than the ones that once existed under Industries (Development & Regulation) Act (IDR) and Monopolies and Restrictive Trade Practices Act (MRTPA).

The proposed policy must provide for single-window, integrated clearance of projects under all environmental laws at one go. The approval granting authority should seek advance ruling on composite clearance from National Green Tribunal (NGT). It has soft corner for eco-terror-focused NGOs that often succeed in engineering delays or even in altering/aborting projects.

Once NGT gives the go-ahead, the judiciary should not entertain any PIL against any upcoming project. PIL should be admitted only after an operational project fails to comply with terms and conditions of composite clearance. New Industrial Policy must provide categorical assurance to contain havoc wreaked by eco-terrorism on wealth and jobs creation.

Without the adoption of this game-changing approach, investment in new projects would never reach the optimal level as the delays and risks involved in projects implementation are unbearable. Investors would always prefer to locate projects in less risky countries.

Oil and Natural Gas Corporation (ONGC) has mooted such an approach. It has pointed out that a lot of time and effort of companies goes in securing timely grant of approvals for oil exploration and production blocks won through competitive bidding organized by the Government.

ONGC has suggested that Ministry of Petroleum and Natural Gas should obtain all requisite prior approvals for blocks before auctioning them.

A similar approach can be followed by the Centre for major minerals and by the States for inserted minor minerals before the auction of mining rights.

Tata Steel has also mooted a slew of reforms for expediting sequential and multiple green approvals. In its submission to the Expert Committee on Prior Permissions and Regulatory Mechanism (ECPPRM), the company, for instance, mooted: "There should be provision for coverage of linked or joint projects for a combined EC as separate EC for each linked project through different EAC further delays initiation of project/construction activities".

ECPPRM submitted its report to Department of Industrial Policy and Promotion in February 2016. ECPPRM did not not recommend single window clearance for green approvals.

Nevertheless, ECPPRM did make valuable suggestions that can mitigate unwarranted business risks and rejuvenate industries. Shockingly enough, ECPPRM's recommendations have not found echo in DP.

A recommendation that must be incorporated in proposed policy reads as: "There is need for a standing institutional mechanism within government for an Independent Regulatory Impact Assessment on an on-going basis of the existing regulatory requirements and proposed new ones across the entire range of economic activities".

It continues: "This process should take a fair and balanced view regarding what is good for business and consequently wealth creation and employment generation on the one hand and public welfare considerations such as consumer protection, safety, preservation of the environment and interest of labour, on the other".

ECPPRM's two other recommendations that deserve inclusion in Industrial Policy 2017 are: adoption of international standards in different sectors as that can facilitate India's emergence as export hub and third-party audit and certification of regulatory compliance by approved agencies.

Similarly, the report of the Working Group on Business Regulatory Framework that submitted its report to erstwhile Planning Commission in 2011 deserves scrutiny in preparation of new industrial policy.

The Report recommended "creation of National Business Facilitation Grid (NBFG) – It is recommended to develop the National Business Facilitation Grid (NBFG) to serve as an online One-Stop-Shop for all the information relation to business regulation and procedures in India".

The theme of new industrial policy should be unrestricted efficient, mass production of goods and services with catchline "We Serve the World".

As put by ex-PM late P. V. Narasimha Rao in Parliament in August 1991 during a discussion on new industrial policy, "the crisis of efficiency is what is affecting the prosperity of the nations. The moment a nation becomes efficient, its prosperity immediately looks up. In fact, the development is not only a linear, but often in a geometric progression".