The year gone by, 2014, was a year of highs. As early as in February, hopes emerged with the election surveys and after the May election results business sentiments scaled on unprecedented highs.
As the new government took charge, the first government in 30 years where the ruling party has a simple majority in parliament, the high hopes of reform remained just that for nearly six months but in the last month of 2014, there came a flurry of activity.
Sectors like defence, insurance, medical equipment and others have been opened up for more foreign direct investment (FDI), land acquisition rules have been eased through an ordinance, the first steps have been taken to allow commercial mining of coal and finally there is some forward movement on the goods and services tax. “While the ordinances are welcome, it needs to be noted that they are just that,” says Koushik Chatterjee, Group ED - Finance of Tata Steel .
“The purist will tell you that the ordinances are enactments during emergency or during crisis because in the next parliament it has to get ratified, it has to get discussed and so on. If you look at the number of stakeholders that have emerged today in general in India is the central government which sets the policy in the parliament,” he adds.
Below is the verbatim transcript of Latha Venkatesh’s interview to Koushik Chatterjee, Group ED - Finance of Tata Steel and R Shankar Raman, Whole-Time Director & CFO of L&T as they take stock of 2014 and look ahead to 2015.
Latha: I quickly ran down the acts and ordinances that are already in place, FDI in several sectors like insurance and defence as well the land act amendments now coming through an ordinance. I wanted to ask you, the mines and minerals ordinance is in the works but we are told that it will be an ordinance probably in five-ten days. Do you think at least some part of your problems are resolved in terms of mining likely to get started?
Chatterjee: In the Make in India campaign workshop a few days back the Prime Minister himself said that the campaign is in the form of a chain management process whether it is at the policy level, the administrative level or the bureaucratic level. So, these are the manifestations of the willingness to make things happen. There are many complex issues in many of these legislations. It is also important that legislations be done carefully with new consultations with all the stakeholders, because legislations are permanent documents and permanent frameworks on which investors do come in. This government has recognized that legislations has to be predictable, has to be stable and so on.
So, it is certainly in the right direction. If one looks at it, the land act is being changed very quickly because it has been realized that one cannot possibly implement the act, which is a very new act from what was there several decades back. So it is also important to be careful and mindful about what legislations are being put into place.
It is not like every new legislation is the right legislation. So it is important that all stakeholders are consulted and consultations be done in a manner that robust form of legislations are in effect for some time to come in the future and it can be implemented and it does good for the country.
Q: Let me read the subtext of what you are saying and something that I have heard from a lot of India Inc heavyweights that actions and acts of the government of 20 years vintage have been challenged by the courts and now all that we have got is an ordinance which is still not law. Are you saying that the road travelled so far in the form of ordinances and in the form of some actions in terms of FDI, is not quite going to give people the confidence to invest. We would rather see a full-fledge law?
Chatterjee: The purist will tell you that the ordinances are enactments during emergency or during crisis because in the next Parliament it has to get ratified, it has to get discussed and so on. If you look at the number of stakeholders that have emerged today in general in India is the central government which sets the policy in the parliament.
You have the state governments which implements policy, then you have the judiciary and activism around the judiciary that has come in and then you have the citizens, corporate etc. So, you need to understand that ordinance is still in that form temporary because it needs to get passed by one very important stakeholder- the parliament. There are certain states like Bihar, which 20 years back used to only come up with ordinance because the assembly never used to work. But you do not want that kind of thing, you need to have prominent set of regulations, which passes through full consultation and ensures that it is robust enough. So, as an investor inside or outside, there is an element of uncertainty on ordinances, let's face it. So it does not become a permanent law till it passes through the parliament.
Q: There were quite a few people from the mines and metals industry, your sector, who were telling us that invariably their leases have not been renewed by the state governments on time, they are told to mine even after the leasing period is over and then they are in violation of the law and then they are imposed penalties. They say even after the court gives them the permission and the centre gives them the permission, state government have not given them either prospecting licenses or converted prospecting license into final licenses, the new MMDR ordinance gives the center the power to set time limits to the state and if the state doesn't renew, it is considered renewed anyways. Will that untie some of the knots or do you think that will also remain tentative?
Chatterjee: We do not know what is finally going into the cabinet but this is what we are measuring is the effect, the cause of this is somewhere else which is the alignment of the center and states, the alignment of the bureaucracy to do things, which are in the right context, which is why I talked about the chain management process that the Prime Minister is trying to push because all of this if it gets aligned then you will see the behaviour change then you will find that the state governments get into the right alignment etc. They are all aligned into saying what is necessary, what is the accountability that I have and what I am suppose to approve or not approve etc. So this is important. This does not come by a piece of legislature because in a piece of legislation you will certainly find some scope, space for somebody to block or do not do things. I think it is a larger issue of enhancing the cores of what we want to do for the country.
Q: There are couple of things that an industry like yours or a company like yours should find advantages - 51 percent of FDI allowed in defence, more private sector investment in defence. Is that at least directly meaning more orders for you and others?
Raman: Well begun is half done. A lot needs to be done. I wish things are so simple that based on certain percentage shareholding, flow of technology and capability to manufacture sophisticated pieces of equipment would emerge. According to me, what we have gained in the last six months essentially has been A] political advantage and B] a lot of qualitative improvements in the scenario. That is why the sentiment has run away the way it had. Today there is growth orientation very clearly in the minds of government and the ordinance is that we are talking about in terms of relaxing some of the tough legislations into more pliable ones and improving the flow of capital and on the back of it, technology -- all of that are good enablers but according to me we have just showed the way. The path needs to be walked. It is keeping the stakeholders engaged and interested but we are still at least in my opinion year to a year and a half away before we see on the ground effect and quantitative benefits of all this good intentions.
Latha: What about the land act itself, it allows you to dispense with time consuming things like taking consent and doing social impact assessment for industrial corridors, for land, for PPP projects where government is the dominant shareholder or land owner, does this mean that order flow will be a little quicker for you in 2015?
Raman: I think very clearly there is a big step forward. There is a lot of time saving that is likely to accrue to the people who are interested in acquiring land because of these developments. But it still remains to be seen as to how efficient the end-to-end process is because when you talk about enclosed acreages and you talk about setting up a manufacturing unit, you are talking about 100 acres, 500 acres then that is one kind of a situation.
Source: .moneycontrol
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