The Hindu Business Line : The fallout of policy flip-flops

Policy stability is what investors, both domestic and international, look for and they get panicky if the government of the day suspends or delays the clearance of a project on the basis of political controversies.

A Predicament

The Commerce Ministry introduced the Special Economic Zones (SEZ) concept through an Act of Parliament in 2005 and incorporated the relevant guidelines through the SEZ Rules notified in February 2006.

But it now finds itself in an unenviable predicament with the higher echelons in the administration directing the Ministry to freeze all prospective SEZ notifications after the Empowered Group of Ministers (eGoM) failed to resolve certain contentious issues on land misuse in its January 22 meeting.

As many as 63 SEZs have been notified, with another 40-45 to go, even as land acquisition and other preparatory formalities are being completed.

Yet, their notification, to be issued after the Law Ministry gives its nod, has been put on hold till the eGoM gets back to business. Also, the rehabilitation policy is to be placed before the Cabinet andapproved.

In fact, the rationale for coming out with an SEZ Act 2005 and the SEZ Rules 2006 was to plug loopholes in the current rules and create the consolidated enabling documentation for an investor-friendly milieu for prospective SEZ developers.

Integrated approach

Whether it was the late Murasoli Maran, his successor, the late Ramakrishna Hegde, the NDA government's Mr Arun Jaitley or the present Commerce and Industry Minister, Mr Kamal Nath, they all swore by an integrated approach and policy stability so that investors do not feel they are being taken for a ride in the maze of bureaucracy.

No wonder that, on hearing that further notification has been suspended, a private company has written to the Commerce Ministry that its project in Visakhapatnam in Andhra Pradesh, apparently involving an investment of over $1 billion and, subsequently, an equivalent amount in annual garment exports to the US and the EU, is in peril.

In the hope of early notification after formal clearance, the company claims to have invested heavily ahead of the Integrated Apparel Park coming up at Atchutapatnam, Vizag, in infrastructure in a training centre at Penduthy, and an apparel-manufacturing unit at the Visakhapatnam SEZ, Duvvada.

The company said that "delays and uncertainties of this nature in notifying the project would compel us to incur heavy financial losses and adversely affect our project timelines. It will tarnish our image as a reliable destination for textile and apparel exports in an already highly competitive global market".

The fallout

It may not be long before a similar litany of woes is heard from other investors. Commerce Ministry mandarins have to try and avoid further policy flip-flops so that the Act and its accompanying Rules do not lose their relevance. For, if they do, the casualty is bound to be investment and employment and the image of the country as a preferred investment destination.

G. Srinivasan

More Stories on : Infrastructure | Policy

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
The rating gets better

The fallout of policy flip-flops

To make success of M&As — Focus on `people and culture' factor

Stealth aircraft development — Only a wingman's role for India?

No book fair on the Maidan, a big blow to Kolkata

`Kindly Adjust'

Inflation control