To combat allegations of ‘crony capitalism’

With scams concerning natural resources grabbing headlines, the Planning Commission has suggested a rethink on policies related to allocation of scarce resources to private companies for commercial exploitation. Scare resources include land, mining rights, spectrum and so on.

In fact, the 12th Plan document, to be discussed at the full Planning Commission meeting chaired by the Prime Minister here on Saturday, lists this as one of the most important areas for policy rethink. The 12th Plan period began on April 1 and will end on March 31, 2017.

“Any such allocation for profit-making commercial activity involves some implicit ‘rent’ if the price at which transfer takes place is not market determined. This feeds the suspicion that ‘crony capitalism’ is at work”, says the Plan document, according to a highly placed source.

The document further says that economic reforms had eliminated such discretionary decision-making in areas such as industrial and import licences, but there were other areas where discretionary allocations continued. However, it appreciates the fact that this weak spot has been recognised and the allocation of such resources in future to private sector companies will be done through a transparent auction.

The document, summing up the issue of ‘combating crony capitalism’, says, “Looking ahead, it can be said that the policy environment for the 12th Plan will be much more transparent, which is an important gain.”

Immediate priorities

The Plan document also talks about immediate policy objectives. It says in the very first year of the Plan, efforts should be made to revive the ‘animal spirits’ of investors that have suffered for a variety of reasons, some of which can be easily corrected.

It also lists some tax changes brought about in this year’s Budget as ‘anti-investor’ and desires that these be amended as quickly as possible. The document hopes that a firm decision on recommendations of two expert committees appointed by the Finance Ministry to look into these issues will be taken soon.

It also expects that based on the Kelkar panel recommendations, the Finance Ministry will lay out a credible roadmap to improve the fiscal deficit of about 3-4 per cent by the end of the Plan period.

(This article was published on September 13, 2012)
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