3. Permit Raj in a Brand New Avatar


Vested interests are using the MoEF’s green clearance to hold up economic activity in India

By Jaithirth Rao

Photo: Tushar Mane

IN THE bad old days before Narasimha Rao liberated us from the Licence Permit Raj, it took a minimum of three years (the average was closer to seven years) to obtain an industrial licence. Anyone who wanted to start a factory was treated as if he or she were a supplicant. Guess what, very few factories were started in India and ordinary people couldn’t easily buy TV sets, refrigerators or motorcycles. The current government was clearly unhappy that factories, and for that matter other businesses, are getting started relatively quickly. So they invented the Ministry of Environment and Forests (MoEF) with the specific objective of reintroducing arbitrariness and delays into our national economic decision-making. This behemoth of a ministry has armed itself with rules that have been written by the ministry itself. It is unclear whether these rules are a logical extension of the laws of the land, which presumably have been put in place to preserve and protect our environment.

Whether it is coal-mining or construction of buildings (exceeding a paltry 2,000 sq m in area) or townships or operation of chemical factories, several ‘rules’ and ‘guidelines’ have been laid out. In the normal course, if a rule is contravened, the individual or the firm doing so is punished. They could be fined or blacklisted. If there was/is malafide intent, they can be prosecuted. But this simple recourse to the rule of law does not suit the mandarin spirit of the MoEF. Even if you are complying with the rules and guidelines, you require their “prior approval”, which can be endlessly delayed in a completely arbitrary and whimsical manner. The eminent ministry clearly prefers a country where we are ruled by men and not by laws.

The net result is that if there is a single choke point that is holding up economic activity in our country analogous to industrial licencing in the earlier days, it is the MoEF clearance. If we cannot build buildings, open up mines or start factories, how can we have economic growth? While by no means the only reason, the MoEF bottleneck is clearly responsible for a substantial part of the slowdown that India is experiencing. A slowdown is not just about numbers. We have fewer jobs; our fiscal revenues decline; we have less money for spending on welfare measures; we have higher levels of poverty and deprivation than we would otherwise have. Is there a way out that does not compromise our national commitment to a clean, safe environment and an ecosystem that we can feel proud to bequeath to our children?

There is no need to try and import the so-called ‘best practices’ from other countries. Why not look at our own experience? In colonial times, the British government had created an office known as the Controller of Capital Issues (CCI). The CCI was not an independent official. He was very much part of the hierarchy of the Ministry of Finance and hence susceptible to prevalent political pressures. This official was required to give “prior approval” to any company before it could raise any capital. The omniscient CCI would specify how many shares a company could issue, at what price these shares could be issued, what quotas need to be reserved for investors of different classes, when the capital could be raised and so on.

One fine day, the Narasimha Rao government simply abolished the office of the CCI, a hallowed institution with a history of more than five decades. Did the government completely deregulate the capital markets? Of course not. The government established an independent autonomous regulatory body known as the Securities and Exchange Board of India (SEBI). With some delays, SEBI was finally given its contours through a well-thought-out statute.

Illustration: Sudeep Chaudhuri

THE DECISION to abolish the CCI has had a lot to do with the subsequent growth of the Indian economy. Entrepreneurs were able to raise capital more easily for growth. The founders of Infosys have gone on record that they could not have raised capital and grown if the CCI continued to exist. Over the years, SEBI has developed a reputation for transparency, sobriety, commitment to investor protection and a simultaneous commitment to being business-friendly.

Has everything been perfect? Of course not. There have been frauds, scandals, failures of corporate governance, benami transactions and so on. Most, if not all, have made it to the public domain. Many have been rectified. Some market participants have been fined and penalised otherwise. Net-net, the impact has been positive. Our financial markets have become deeper and wider. Indian technology has been put to good use. Our settlement systems are more timely and accurate than those in several wealthy countries. Entrepreneurs without family connections are able to raise funds. There is greater economic efficiency in the allocation of the savings of Indian citizens.

The fact is that today India has a competitive advantage because it has well-regulated and well-run capital markets supervised by an effective independent, autonomous regulator. The important characteristics about SEBI that are noteworthy are the following:
a. Clear rules
b. No absurd requirements for excessive “prior approvals”
c. Autonomy and independence for the institution without day-to-day ministerial interference
d. Well-defined penalty procedures for violation of rules
e. Well-defined appellate procedure
f. Credibility in the eyes of the public

It is not this writer’s argument that SEBI or Indian capital markets are perfect. But the present system is infinitely superior to the one that prevailed under the CCI and this change has resulted in benefits for the economy as a whole and to all participating actors. The current fear, if anything, is that our government may curb the independence and professionalism of SEBI and take us back to the CCI days. While there is a risk of such backsliding, one can only hope that better sense will prevail.

If the capital markets can be “liberated” and governed by an independent agency that is in charge of implementing transparent rules, why can’t we have a similar situation with respect to the environment? We can and we should create an independent Environment Management Regulation and Protection Agency. This body should have statutory backing, just like SEBI or the RBI. The members and the chairperson of this agency should be appointed for fixed terms.

If capital markets can be governed by an independent agency, why can’t we have a similar situation with environment?

The agency would be required to publish a simple, minimalistic, clear, lucid, transparent set of rules for different activities — mining of coal, building a bridge, building a township, building a skyscraper, setting up a chemical factory and so on. The rules should be framed and periodically updated after open and extensive discussions, all of which can and should be in the public domain. If the rules are followed, the need for “prior approval” should be eliminated. Where there are grey areas, prior consultations and approvals should be insisted upon but should be dealt with in a time-bound manner.

The agency should have the powers to impose penalties. It would therefore focus on “monitoring” what actually happens on the ground rather than on delaying matters with unnecessary “prior approvals”. As an example, if a project requires the planting of a thousand trees, the current MoEF process gives inadequate attention to whether in fact these tress have been planted. There should be an appellate tribunal to which the penalties can be appealed and this tribunal should have the same judicial position as a high court.

I would argue that moving environment protection away from discretionary “prior approvals” of a ministry to a transparent, rule-bound, monitoring-based independent regulatory agency would have the following consequences:
1. The ability for businesses to plan better
2. The ability for entrepreneurs without connections to create value and wealth for the nation
3. An unleashing of infrastructure, construction, mining and other development, which will add several percentage points to our growth rate, several million jobs and several thousand crores of incremental tax revenue, which would then be available for welfare expenditure
4. An improvement in the way we manage our actual environmental protection by monitoring actions on the ground rather than staying focussed on theoretical “prior approvals”, which do not help save the environment, but make us feel that we have been good patriotic Indians keeping faith with our ancient culture of delay! (I sometimes wonder whether we love delays because the Vedas do not refer to the time value of money!)
5. An elimination of excuses that currently dominate so much of our economic discussions, eg: Coal India claims not to be mining coal because of MoEF delays; affordable homes for our aspiring poor are not getting built because of MoEF delays; Power plants are not getting commissioned because large sections of the public are not convinced that the monitoring of these plants is being done by an independent, autonomous agency, but by government departments that have a vested interest in pushing them through

Apart from the economic arguments, there is a transcendent argument of political morality if we wish to stop the deterioration of the fabric of our republic because of our current system. Since “prior approvals”are so difficult to come by, legitimate businesses are being strangled. But guess what, there is a thriving bunch of criminal elements who do not bother to apply for “prior approvals”. They simply mine where they please, dig where they can and build as they want. They are causing environmental damage on a colossal scale threatening the future of the fractured land that we are going to leave behind to our children. These Mafiosi undertakings are merrily going around killing anyone who opposes their illegal activity. They have started killing even law enforcement officials. The corrosion that this is causing to the moral foundations of our society has now reached frightening levels.

Penalties can be appealed to an appellate tribunal, which should have the same judicial position as a high court

When legitimate businesses exist, they tend to automatically police their illegal competitors. For example, an established mutual fund company has an incentive to bring to the attention of the public as well as SEBI the fact that Company XYZ is running a ponzi scheme. When illegal businesses become dominant, the tectonic shifts in the earth beneath our feet seem to be slow to start with. But let us beware, we can have an earthquake soon.

The intentions behind the creation of the MoEF were good. Those of us who have love for the contours, the waterways, the hills and vales of our haunted peninsula cannot but be supporters of these extremely valid intentions. We must do our best to preserve and protect our environment. Our classics refer to India as the land where seven sacred rivers flow and where the blackbucks roam. Let it not be said that our generation betrayed our inheritance.

But clearly it is possible for us not to delay economically important projects while simultaneously ensuring that the citizens are reassured that a fair and credible process for monitoring these projects is in place and that such monitoring is being done by a trusted independent agency not susceptible to expedient political pressures. And in so doing, by supporting legitimate activities, we can undermine the growing criminalisation of our country. It is always difficult for a government to voluntarily divest itself of discretionary powers and hand them over to an independent agency. But there are times when such a decision is the only wise and moral one in all respects. I urge our present rulers not to be paralysed into inaction but to do what is right and do it soon.

One of India’s foremost right-wing economic thinkers, Jaithirth Rao is founder and chairman of Value and Budget Housing Corporation, a company in the affordable housing space.


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