India looks set to begin dismantling a complex web of regulatory requirements that throttle its infrastructure growth, with plans to set up a special body this week to speed up projects in a sector seen as vital to reviving economic momentum.
The move is the latest in a slew of big-ticket reforms by Prime Minister Manmohan Singh’s government, from raising diesel prices to opening supermarkets to foreign competition, to spur growth which is at its slowest pace in nearly three years.
Finance Minister P Chidambaram said the cabinet was expected to establish a National Investment Board (NIB) this week, to speed up clearances for projects that are now bounced from one ministry to another in a process that can stretch for years and frustrates investors.
Government officials say regulatory delays have held up projects worth nearly Rs 2 trillion in the road, power, coal and mining sectors alone.
However, this latest reform initiative may not be the panacea for a sector hobbled by layers of bureaucracy because, despite the single-window in New Delhi, approvals could still be held up by mandarins in the states where projects are proposed.
In what is seen as a hangover from the days of the “Licence Raj” economy of quotas and permits – which Singh helped abolish as finance minister more than two decades ago – a typical infrastructure project requires clearances from 19 central ministries ranging from environment to defence.
“The idea is nothing should be held up beyond a reasonable timeframe,” a senior Finance Ministry official said, when asked about the board. “You cannot just sit over it. You cannot just sit over a file.”
The government’s investment reforms of recent weeks are expected to help turn around bearish investor sentiment but they may not perk up growth without a rapid upgrade to the nation’s pot-holed roads and stretched power networks.
India’s investment rate has fallen to 32 percent from 38 percent in 2007/08. Analysts say investment needs to pick up before the economy returns to the 9 percent growth it was clocking before the 2008 global financial crisis.
Poor infrastructure is a blight on the economy. Frequent power cuts, poor roads and an antiquated railway network sap the competitiveness of Indian businesses and leave hundreds of millions of people without basic utilities.
In July, a collapse in three of India’s five transmission grids cut power to 670 million people.
U. Kumar, an adviser to Essel Mining in the Aditya Birla group, said the group’s Hindalco Industries was awarded permission to mine a coal field six years ago, but was still awaiting environmental clearance to start.
Even though the number of desks a mining application has to pass through in the forest department has been reduced by 10 to 26, there are about 28 acts and rules under which clearances are required, he said.
To start an infrastructure project, it requires on average 56 permissions from different central, state and local agencies. The whole process takes about up to 24 months.
The proposed investment board, headed by Singh, will focus on fast-tracking the execution of approved projects by getting all regulatory clearances.
Singh has already set up panels and instituted an investment tracking system to speed up stalled projects. However, those measures have done little to cut the bureaucratic tape. Chidambaram recently said the experiment had failed.
Regulatory hurdles forced firms to shelve 1.8 trillion rupees worth of projects between April-August 2012. Similar issues resulted in the deferment of 4.5 trillion rupees of projects in 2011-12.
Investors have welcomed plans to create the board, but analysts warn that it is unlikely to be a perfect solution.
While it will cut the amount of time needed for central approvals, it has no power over individual states in which projects are located, leaving construction at the mercy of state-level permissions.
“Different ministries, at times, work in isolation, which further delays projects. A board, chaired by the prime minister, will certainly help in expediting projects,” said Vishwas Udgirkar, a senior director at Deloitte.
“But it will not solve all the problems facing the sector.”