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Policy paralysis in India

November 04, 2013

FOR over the past two decades, Prime Minister Manmohan Singh has been identified as the man who initiated bold reforms that pulled India out of an economic black hole and ensured a vastly better lifestyle for millions of its citizens.

But as the second five-year term of his government draws to a close, Singh is increasingly being viewed as a man who has presided over a regime that is anti-business, deters foreign investors, and is directionless and leaderless.

The United Progressive Alliance (UPA) government — an unwieldy coalition of disparate political parties — has drawn in different directions, and Singh, a bureaucrat-turned-reluctant-politician, has been unable to keep his allies, party men, ministers, bureaucrats and others together.

In fact, the last few years have seen various groups, ministries and agencies working at cross purposes, and a rudderless government has watched helplessly as business sentiments got mauled and the economy derailed.

Constitutional and extra-constitutional authorities, ranging from an over-zealous comptroller general and an abrasive army chief, to ‘activist’ environment ministers, revenue officials and unelected members of the National Advisory Council (a super-cabinet of sorts), have been running riot; hijacking the state machinery and pursuing their personal agendas.

And with barely months to go before the end of its second five-year term, the Manmohan Singh government is now faced with another seemingly hyperactive agency: the Central Bureau of Investigation (CBI) — a usually pusillanimous beast that has suddenly decided to take on the high and mighty in the world of business.

Last month, the CBI accused a respected business leader, Kumar Mangalam Birla, chairman of the multi-billion-dollar Aditya Birla group, of conspiring to obtain a coal block for a subsidiary at a hefty discount.

The BJP-led opposition has been baying for Singh’s blood in the coal scam, but investigative agencies have not been able to rustle up much evidence against the government.

The ‘coal-gate’ scam, as it has been dubbed, is yet another of those hyperbolic and sensational ‘scams’ exposed by a former comptroller and auditor general, who had over-stepped his brief to lecture the government on policy matters.

The constitutional authority had found fault with the government for the manner in which it had allocated the 2G telecommunications spectrum and coal blocks to private players. It then calculated the potential loss caused by the misallocation of these natural resources (running into ridiculously large amounts), which have been further sensationalised by the electronic media.

While there definitely were some major misdemeanours committed by members of Singh’s cabinet (including a former telecom minister) and some state ministers in the two scams, overall, the two policies relating to the allocation of the resources were pragmatic and pursued as part of further reforming the sectors.

The tragedy with Singh and his senior ministers and party colleagues was their inability to defend the policies — a weakness that has naturally been exploited by the opposition.

WHILE the CBI is still not an independent investigative agency, it has, all these years, been misused by governments to pursue cases against political rivals. However, the Indian Supreme Court has in recent months been intervening in the investigations and directing the CBI to report directly to it.

But the agency’s decision to initiate charges against Birla has come as a surprise. Unlike many shady business groups, the Birlas (along with the Tatas) are perceived to be relatively clean. In fact, the CBI’s move has been slammed not just by business lobbies and other industrialists, but even by ministers.

Veerappa Moily, the oil minister, has warned that India could end up like Russia, where high-flying businessmen routinely end up in jail thanks to over-zealous prosecutors and ministers.

“I am not here to give a value judgment, but at the same time, I think the time has come to ensure that whatever we do should be in accordance with the strict rule of law. You cannot proceed against somebody on mere perception and unless there is cogent evidence to proceed with,” said Moily.

According to the minister, the job of ensuring that India does not end up like Russia, a country that global investors are avoiding, rests not just with the government, but also with agencies like the CBI and the judiciary.

Anand Sharma, the minister of commerce and industries, urged authorities, including the comptroller and the auditor general, as well as courts and agencies such as the CBI, to not play to the gallery and create an environment of sensation and shock.

“Top industry leaders have spoken to me, protesting strongly (against the CBI action),” said Sharma. “They have said it is impossible to operate in this sort of an environment.”

The minister admitted that repeated allegations against the government’s actions relating to the allocation of the 2G spectrum and coal blocks had created a sense of policy paralysis, hurting investor confidence.

Corporate affairs minister Sachin Pilot also felt that recent incidents would dampen business confidence and investor sentiment, both domestic and foreign. “It could also negatively affect decision-making by bureaucrats and policy-makers,” he averred.

“While no one is above the law and wrongdoers have to be brought to justice, we must ensure that such actions are based on hard facts and do not create an atmosphere of fear and uncertainty.”

Even Singh, known for his stoic silence on most issues, came out strongly in defence of Birla and denied any wrongdoing on the part of the business group.

The industrialist, whose flagship Hindalco was accused of irregularities, dismissed the charges. He said he was not worried about the charges, as Hindalco had not done anything wrong. The company had followed all the processes required for allocation of coal.

AND confirming the declining confidence of global investors in India, the World Bank recently revealed that the country slipped three positions to the 134th spot in its ease-of-doing business index. Its rank was below the South Asia average of 121. The ‘Doing Business’ list of the World Bank ranks 189 economies on various parameters for ease-of-doing business.

They include factors such as permits required to do business, access to electricity, protection of investors, taxes, enforcement of contract and cost and outcome of insolvency proceedings against a company.

The list is topped by Singapore and followed by Hong Kong, New Zealand, the US, Denmark, Malaysia and South Korea. India, which ranked 131st last year, fared badly in terms of nearly all the indicators.

India’s rank in terms of ease of starting a business is at 179, down from 177 a year earlier. Its ranking was 182 when it came to dealing with construction permits; according to the World Bank, 35 steps are needed in India for obtaining such a permit, against just 13 in the developed world.

Not surprisingly, corruption is rife in the construction trade in the country, thanks to the ‘license raj’ regime.

And in terms of enforcing contracts — which reflects the efficiency of the judicial system in resolving commercial disputes — India ranks at a lowly 186 out of 189.

International majors such as Vodafone have had to pay a high price for the inefficiencies of the Indian tax system. Even though the courts have backed the company, government departments continue to stonewall, letting disputes drag on for years. This climate of uncertainty has deterred many investors, who are wary of investing in the country.