Opening windows behind closed doors

The question is whether FIPB has outlived its utility. Ideally thereshould be no body which has to sit and clear foreign investment. If the Government is clear about what it wants or does not want then it should be put on paper. “If there is a clear policy on foreign investment then there is no need for a bunch of officials to sit in judgement over foreign investment applications,” says a senior officer involved in processing foreign investment proposals. “But this is done because there are still no guidelines in several sectors.”

Even if the FIPB clears a project, the administrative ministry of the sector scuttles the proposal. There have been proposals in civil aviation, publishing and media where lack of clear guidelines has led to confusion and undermining of the FIPB approval system.

The other argument in favour of doing away with FIPB is that the states are capable of handling foreign investment on their own. But some investors worry about the headaches involved in not dealing with a central Government body. "The government has said that States can clear powerprojects worth Rs 1,500 crore, but what about the clearances from the Central Electrical Authority (CEA), and from the finance ministry if the project has to raise foreign loans?" questions a top official of a Mumbai-based power multinational.

"The decentralisation of power to the states is a good move, but the Union government can still pull strings through its other departments… only if there is a clear cut guidelines, investments would flow in," adds he.

There is still a lot of petty red tape in which the investor can get stuck at the state level. To get over this the state Government should also have a mechanism for single window clearances, say industry representatives.

Of all the seven so-called `fast track’ power projects in India, very few have really made it. On the contrary, due to confusion in policy making, differences between the state and central Government, litigations, and consequently lack of institutional funds, these projects are a pathetic failure of the Indian bureaucracy andpolicy makers, say industry captains.

Says rating agency, Standard and Poor’s: "Many state governments, including those run by the BJP and the communist parties, seek foreign direct investment especially as their own resources for capital expenditure dwindle. Differences in the economic policies often are greater within a political party than between them." It hinted that strong swadeshi lobby is trying to go slow on economic reforms and, can spike all the big announcements made by the government.

The S&P concludes that a similar consensus has developed on loosening India’s centralised federal system by restricting the ability of the central government to arbitrarily dismiss elected state governments and by improving the flow of federal transfers to the states.

"While such reforms will take time t implement it is significant that the regional parties on the previous and the current governments appear more interested in influencing central government decisions that affect their states, than inundermining the powers of the central government and India’s unity," S&P adds.

Several power projects of investments below Rs 1,500 crore in India are pending approval from the state governments and the union government. First these companies had to negotiate with the state electricity boards government for the power purchase agreements and with the CEA for the final clearance. "If the CEA does not come into the picture for the projects below Rs 1,500 crore, it can help the industry," says a Bombay Chamber of Commerce and Industry (BCCI) official.

The funding of the projects is another road-block. "If a project of Rs 1,500 crore goes to raise funds abroad, it has to give an application to the finance ministry to get clearance which takes a long time depending on the overall position of the forex inflows… these anomalies have to be removed first," he adds.

FIPB’s role has been whittled down sharply over the last one year. In early 1997, the United Front Government expanded the list of industries underwhich automatic approval could be given by the Reserve Bank of India. An additional 16 categories of industries were added to the existing list of 35 under which automatic approval could be made if the foreign equity was upto 51 per cent. Another list of nine industries was added where foreign equity of upto 74 per cent would be allowed automatic approval.

Government officials say that the FIPB would have served its purpose once all the industries are put under the automatic list. For the areas where the Government does not want foreign investment, it should make a negative list. Either way the investor will know what he is getting into. There would be little scope for subjectivity or arbitrariness.

Of course, for this the RBI’s approval mechanism would have to be strengthened. Already there are trends that the investment flow from the RBI route is on the increase. RBI on its part has simplified certain procedures so that the red tape is reduced. Early this year it decided to give general permission underFERA so that the companies did not have to seek separate permission to bring inward remittances.