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Business Commentary/ Rajiv Shukla

Passage for foreign investment proposals made easy

The government has finally decided to set up a Foreign Investment Implementation Authority for smooth clearance of proposals for direct foreign investment in the country. This is in the right direction, provided the FIIA is given enough power to control the bureaucracy.

Though economic reforms and the process of liberalisation continues, the mindset of most government officials has still not changed. Bureaucrats still live with the notion of a closed economy with no window open. They still have a negative attitude, and love blocking most proposals in typical babu style.

The Cabinet Committee on Appointments, in my considered view, must ascertain a civil servant's mindset before clearing her/his name for posts like joint secretary, additional secretary and secretary in the central government. The CCA must ensure that the officer concerned has a reputation of being positive and is not a negative babu who sits on files and hates to clear proposals.

Bureaucrats with a negative mindset -- even though they may be honest -- have destroyed the Indian economy to a large extent. They look at investment proposals with suspicion, calculate how much money the investor will make without realising how much the nation will benefit from such enterprise.

This attitude and such bureaucrats have ensured that India does not have one good highway, no airport of international standard, no proper surface transport, dockyards, power supply etc. Foreign investment in our country is nothing in comparison with what smaller countries like Thailand and Singapore get.

The Foreign Investment Promotion Board expedites most investment applications these days. Almost all the projects have been cleared barring a few which have technical problems. The FIPB hopes to get $ 4 billion in investments this year and plans to take that figure to $ 10 billion next year.

FIPB chairman Ajit Kumar, who is also the secretary, industrial development, has developed a system whereby no one needs to hang around the board's office. If your application fulfils the desired requirements, the government's sanction will reach you automatically. This has given foreign investors great relief; earlier they ran from the proverbial pillar to the bureaucratic post to obtain FIPB clearance, especially during Prinicipal Secretary A N Verma's tenure.

Our system is such that you are still required to obtain 28 clearances after securing the FIPB's clearance. There are several central and state government departments which are required to issue no objection certificates/clearances for an enterprise to utilise the facilities.

This is where proposals get blocked. Investors are often asked to pay bribes for the clearances. This is the reason why only 30 per cent of projects which have secured the FIPB's clearance have been set up. The land, sales tax, excise, customs, environment, revenue departments, apart from the Reserve Bank of India and the Director General of Foreign Trade are some of the government boroughs where investment proposals could get stuck.

After much effort, FIPB chairman Ajit Kumar has convinced the government to set up the FIIA. The Authority will consist of the commerce, company affairs, environment, law, power, steel and urban development secretaries, apart from state chief secretaries. Representatives from the RBI and other institutions will also be FIIA members.

It will be the FIIA's responsibility to ensure smooth passage for foreign investment proposals. There is a suggestion that a bureaucrat of joint secretary rank should be assigned to each proposal; it will be this official's responsibility to obtain all clearances for the investor.

Alas, the problem of bureaucratic attitude remains. The FIPB was recently approached with a proposal to set up large department stores and shopping malls in the metropolitan cities. The FIPB wanted to clear the proposal, but Commerce Secretary P P Prabhu blocked it, saying the venture would hurt small shopkeepers. Prabhu -- whom I consider a 16th century bureaucrat -- does not realise that the clientele for shopping malls is different from the Indians who patronise the neighbourhood bania.

According to one startling estimate, Indians buy 800 million pounds worth of goods abroad every year. All this outgo of foreign exchange could easily be saved if we create good department stores with quality products on sale at home. It could also attract tourists. Is there one place in Bombay or Delhi where a foreigner can buy what s/he likes under one roof?

Rajiv Shukla

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