Tata-led Investment Commission favoured auction of coal blocks

PTI / Tuesday, March 27, 2012 18:46 IST

In the backdrop of draft Comptroller and Auditor General (CAG) report estimating huge losses to exchequer in coal blocks allocation, Tata Sons on Tuesday said the Investment Commission headed by Ratan Tata recommended bidding of the mines to prevent hoarding.

"The commission's proposals categorically were for bidding, more productive usage of coal blocks and measures to prevent hoarding and to ensure competitive usage," Tata Sons said in a statement in Delhi.

The three-member Investment Commission set up by government also comprised noted banker Deepak S Parekh and industry leader Ashok S Ganguly.

The Commission which had worked between December 2004 and December 2009 had given 1,400 recommendations on increasing investment in infrastructure, manufacturing services and the knowledge economy.

According to Tata Sons statement, the Commission headed by its group chief had recommended that investment in coal mining should be enhanced through bidding of blocks and inducement of competition through 'use or lose' policy.

Even in the power sector, the Commission recommended establishment of 25-30 sites for mega projects for a total of 35,000mw with an investment of over $30 billion through competitive bidding on tariffs.

It also suggested carving out specified viable mining blocks from Coal India Ltd (CIL) for captive exploitation.

Alternatively, CIL subsidiaries should be encouraged to induct strategic partners on production sharing basis.

The private sector participation was suggested on the model of bidding in the oil blocks.

The government's policy of allocating coal blocks without auction has come under severe criticism in and outside Parliament after a draft CAG report put the losses to exchequer on this count at Rs10.67 lakh crore.

URL of the article: http://www.dnaindia.com/india/report_tata-led-investment-commission-favoured-auction-of-coal-blocks_1668177-all

Ratan Tata Led Investment Commission presents Report to FM

07 July, 2006

The Finance Minister, Shri P. Chidambaram had a meeting with the Investment Commission headed by Shri Ratan Tata, here today. The Investment Commission Summary will be available on the website of the Ministry of Finance (www.finmin.nic.in). The following is the executive summary of the report:-

India has achieved impressive GDP growth of over 7% per annum in the last few years. However, sustaining growth at over 8% per annum will require a significant increase in investment levels in the economy - from approximately 30% of GDP to about 34% of GDP[1]. Over the next 5 years, this translates to a cumulative investment of over $ 1.5 trillion. The report undertakes to define a strategy that could enable India to achieve this investment goal. While expansion of domestic investment is essential to achieve this goal, FDI, which has been stagnant at about $ 5 billion[2] in the past, also needs to be increased significantly - the Investment Commission has set itself the goal to increase the level of FDI to $ 15 billion by 2007-08.

To this end, 25 key sectors spanning Infrastructure, Manufacturing, Services, Natural Resources and the Knowledge Economy have been studied. They represent a significant part of the economy, and between them would require an aggregate investment of $ 525 - $ 550 billion over the next 5 years. The sector studies also identified past investment levels, plans/ forecasts for future investment, as currently visible, and identification of the deterrents to investment. 

Extensive investor interactions have provided key insights on policy and other impediments faced by investors. The Commission has interacted with industry bodies, associations, Ministries at the Centre and State level, business delegations and companies. Interactions also included meetings with business delegations from the US, UK, Italy, Japan and the Scandinavian countries with over 130 companies represented, altogether. Direct investor interactions (mostly personal meetings) were undertaken with an additional 64 international and domestic investors. 

Arising out of these interactions, projects were identified for facilitation/ support totalling to a likely investment of about $ 30 billion. Representations on policy/ procedures or other impediments were either resolved through reference to the Finance Ministry or have been incorporated in the recommendations in this report.

The major impediments to investment that span multiple sectors have been identified as:

1. Investment restrictions and/ or entry route barriers in several sectors of significant investment potential/ investor interest

2. Absence of long-term policies, non-implementation / reversal of policy and breach of contract

3.Lack of level playing field - especially in sectors with PSU dominance

4.Inflexible labour laws 

5. Many agencies engaged in doing the same or similar activities relating to FDI 

6. Bureaucratic delays, discretionary interpretation, vested interest, bias and subjective practices (In particular, approvals from Ministry of Environment & Forests seen as a major impediment in terms of inordinate delay).

7. Centre-State divergence on investment related policies

8. High cost of entry, transactions and exit; ineffective dispute resolution

9. Poor infrastructure

10. Priority Sectors are not clearly identified/ specified

Based on the investment goals and the identified impediments, a set of broad recommendations have been made which could facilitate and improve the investment climate. These are listed below: 

1. Remove/ reduce restrictions on sector caps and entry route on all sectors other than those considered "strategic". Permit "automatic route" for all investments within the sector cap.

2. Provide labour flexibility by removing the requirement of State Government approval from Chapter V-B and permitting Contract Labour in all areas 

3. Promote SEZs for key sectors. Redefine norms on the basis of scale, investment quantum/ levels and sector focus. Separate the Developer of the SEZ from the Occupants 

4. Provide a level playing field in sectors with PSU dominance - establish an Independent Central Regulatory Commission headed by a Chief Commissioner appointed by the President or the Prime Minister with independent Regulators for each regulated sector 

5. Provide long term visibility and consistency of policy 

6. Improve business environment - reduce number of procedures and approvals; make all approvals time bound and non-discretionary 

7. Eliminate scope for discretionary interpretation to stem corruption - update key laws and statutes using Study Groups or Committees (with Government and Industry participation) to reflect this 

8. Establish effective mechanisms to resolve centre-state issues - establish an Empowered Committee framework (as done for VAT implementation) for implementation of key policies that require Centre-State cooperation such as Power sector reform, Labour law reform, Urban Land reforms (including ULC Act), APMC amendment 

9. Other Recommendations 

Create a special high level fast track mechanism for priority sector projects 

Enhance availability of skilled manpower for sectors like Biotechnology, Automotive Engineering, Textile Engineering, IT - establish new private educational institutes with international collaborators 

Facilitate upgradation of Urban infrastructure by having a directly elected Mayor in key cities - as is the case with major cities in China and the USA. 

Establish a single point contact at the Centre to implement policies and procedures to enhance investment as well as facilitate high value projects across Ministries and Departments.

In addition, recommendations have also been made for specific sectors - Energy, Civil Aviation, Telecom, Metals and Mining, Textiles and Garments, Auto and Auto components, Food and Agro processing, Financial Services, Real Estate & Construction, Tourism and IT / ITES.

As the next phase of taking investment levels to a higher plane, the Investment Commission recommends:

1. The creation of National Thrust Areas - where the Government removes all impediments and provides special incentives for a pre-determined time period in order to achieve a specified growth. These could include Tourism, Power, Textiles and Agro-processing. 

2. The hosting of Mega Events which will focus the country's attention on infrastructure development while also building national pride. Some ideas are: 2010 Commonwealth Games, 2020 Olympics, Football World Cup, Formula One Racing etc.

Footnotes 

[1] Assuming an Incremental Capital Output Ratio (ICOR) of 4.0; while this is higher than the current ICOR of ~3.6, it is based on the assumption that greater investment in infrastructure and manufacturing will increase ICOR going forward

[2] Less than 10% of China's FDI(PIB)

http://www.indlaw.com/guest/DisplayNews.aspx?E218492D-914A-4B32-9F1E-2290CDB8C811

Is India in need of a new investment policy?
January 19th, 2010
Author: Rajiv Kumar, ICRIER

Last week Ratan Tata was reported to have said that the Investment Commission (IC), which he headed, should be wound up principally because of lack of follow-up on its recommendations. The commerce and industry minister was reported as saying that the government is likely to announce a new manufacturing policy by the end of March, and that in his view the share of the manufacturing sector in India’s gross domestic product should increase from the present 16 per cent to 25 per cent. Bravo!



But does India really need another brand new policy for the manufacturing sector to push up its growth rate? We already have the recommendations of the IC, most of which, according to Tata himself, have not been implemented. Not only that, we also have several reports, including the National Strategy for Manufacturing from the National Manufacturing Competitiveness Council, and a comprehensive set of recommendations in the industry chapter of the 11th Plan. Plus we have an assortment of recommendations in reports from think tanks and industry associations. Clearly, we can hardly complain about a dearth of ideas and recommendations to promote manufacturing growth. In fact, the attempt should be, as reflected in the simple four-point action agenda that I suggested on this here earlier, to drastically reduce the number of procedures and requirements and to focus attention on implementing the recommendations that address the most binding constraints. At the least, any new policy document would do well to include a list of recommendations received over the last five years and give us an action-taken report, including the recommendations that have been consciously rejected.

For example, it can be shown that with cumulative foreign direct investment (FDI) inflows in the last four years crossing USD 85 billion, we have already achieved IC’s recommendation of attracting USD 72 billion as FDI in the five years starting 2006-07, and also exceeded the annual target of USD 15 billion with FDI inflows crossing USD 27 billion in 2008-09. Yet, it seems only less than 40 per cent of these inflows are destined for the manufacturing sector in India, compared with more than two thirds in China. While not detracting from this amazing turnaround (FDI inflows in 2005-06 were hardly USD 5 billion and the total FDI in the previous decade was a mere USD 16.7 billion), we must ask ourselves how much of this was because of global factors such as investors trying to diversify country risk away from China, and the ‘good India story’ made to look even better in the context of the global recession, and what could honestly be attributed to measures taken to improve the domestic environment for FDI and investment, in general. Would it not be a fair assessment to say that the spurt in FDI flows during the last four years has happened despite the lack of any real reform and not because of them? One of the first steps, already in the pipeline it appears, would be to rationalise the number of press notes while putting them together and reduce them to a handful that can still address all major concerns.

At present, these press notes and other notifications, with their inevitably varying interpretations and the plethora of procedures and licences, create a virtual maze which can be tackled only by those who have ‘heels of iron’ to run around the corridors and ‘pockets of gold’ to pay the ‘consultants’ and lawyers. This restricts the pool to the large multinationals and excludes the small and medium foreign investors from the mid-west in the US or the Kansai region in Japan or the Ruhr in Germany, who are constantly on the lookout for cheaper locations and lower wages, pressed as they are in an increasingly competitive global markets. We could miss the opportunity of foreign investment moving out of China for a number of reasons, if we do not implement the necessary measures now. Already, Vietnam and Cambodia are attracting increasing volumes, while India’s actual and untapped potential for attracting FDI remains under-exploited. Is it an exaggeration to argue that proper follow-up and implementation of existing recommendations would help India surpass China as an investment destination, especially when Japanese firms are beginning to prefer India as an investment destination over China?

So it may be useful to focus attention on implementing some of the more critical reforms that have already been recommended rather than announce a new set of policy objectives. A focus on implementation will bring greater credibility for the government and immense relief to the investors. It will reduce the uncertainty facing the entrepreneurs and strengthen ‘animal spirits’. By contrast, announcing ‘dedicated investment and manufacturing zones’ as part of a new policy, for example, will only create one more scheme which will, most likely, be indistinguishable from several that already exist. It will create another set of enclaves, divert policy attention, fragment governance capacity and confuse potential investors. Will it not be far more fruitful to focus on follow-up, implementation and rationalisation than announce a new policy?


This essay is adapted from an opinion piece in the Mint, New Delhi.

Dr Rajiv Kumar is Director of the Indian Council for Research on International Economic Relations.

http://www.eastasiaforum.org/2010/01/19/is-india-in-need-of-a-new-investment-policy/