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January 09, 2002

'17'

GOVERNMENT CLEARANCES NOT A PROBLEM, SAY INVESTORS

DEMAND CONSTRAINT MAIN REASON FOR DELAY IN IMPLEMENTATION OF INVESTMENT PROJECTS

CMIE PRESENTS FINDINGS TO MARAN

Government clearances are not a problem for most investment projects in India including those involving Foreign Direct Investment (FDI), according to a survey conducted by the Centre for Monitoring Indian Economy (CMIE). In a presentation made to Shri Murasoli Maran, Union Minister of Commerce & Industry, here last evening on the results of a survey titled "Problems and Progress in Implementation of Major Investment Projects in India", the CMIE indicated poor demand to be single most important reason for delay in implementation of projects in India. The study recently concluded by CMIE on behalf of the Ministry of Commerce & Industry (Department of Industrial Policy & Promotion) is the most comprehensive in recent years on the main issue engaging the attention of policy makers in the government as to the factors which may have contributed to slackness in implementation of major projects in India and these findings provide a new insight which is different from what is widely perceived to be the reason. Shri V. Govindarajan, Secretary (IPP) attended the presentation of the CMIE study which covered a total of 304 projects envisaging a total investment of Rs.3,51,023 crore, accounting in terms of value for 47% of total investment in all projects in India (excluding power, telecommunications and irrigation projects).

The important finding of the study covering the period May to October, 2001 are as follows:

57% of the respondents do not find government clearances to be a problem, while on an average only 19% of the respondents consider government clearances to be a problem. Indian private sector companies find getting government clearance a somewhat bigger hurdle than foreign companies. Also, getting clearance from local government is found more of a problem than state and central government clearances.

31% of the respondents consider funding to be a problem. This is felt an acute problem predominantly by private sector, and particularly availability of loan finance is found a difficult problem by nearly 52% of the private sector projects.

Availability of funds, not cost of funds is seen to be more of a problem. The decline in the PLR by nearly 4% in the last 5 years appears to have eased the cost problem considerably for project promoters.

Only 11% of the projects consider infrastructure to be a problem. The percentage is slightly higher at 19% for power and 15.5% with respect to land availability for Indian private sector projects. On an average, FDI projects find infrastructure much less of a problem compared to government and Indian private sector projects.

Poor demand was the single most important reason for delay in implementation of projects. While 27% of the projects consider domestic demand to be a problem, 16% of the projects consider this to be a serious problem. Overall, 28% of the companies covered in the survey said that they were postponing their initial investment decisions or their expansion plans because of their adverse perception with regard to domestic demand, overseas demand and also competition arising out of imports.
22% of the projects in the manufacturing sector consider demand to be a serious problem.
Projects predominantly funded through FDI show patterns which are similar to the ones seen in other projects.

The Department of IPP, Ministry of Commerce & Industry, had commissioned CMIE in April 2001 to identify the underlying causes for slow implementation of major investment projects in the country.

In all 490 projects (440 projects involving investment more than Rs. 50 crore and 50 projects with investment less than Rs. 50 crore each) were taken up. These projects were located in 25 Districts (top ranking in terms of total investment) of Tamil Nadu, Maharashtra, Gujarat, Karnataka, Andhra Pradesh, West Bengal, Uttar Pradesh, Kerala, Orissa, etc. Projects pertaining to irrigation, power and telecommunications were excluded from the purview of the study as these sectors fall into a distinct category in terms of factors affecting implementation.

CMIE mailed a questionnaire to all the selected projects, out of which 304 responded. Out of these, 122 were from South and 125 from West. The North and East contributed 27 projects each and 3 projects were multi-State. 165 projects were from the manufacturing sectors and 122 were from the services sector and rests were from mining, etc. The number of Government, Indian private and FDI projects was 78, 165 and 61 respectively. 146 projects were under implementation and 113 were at the initial proposal stages.

With a view to ascertaining the reasons for slow progress in investment in the country, the Questionnaire attempted to collect information on problems relating to (a) Government clearances –at Central, State and Local levels (b) availability and cost of finances (c) infrastructure bottlenecks (d) demand constraints and (e) technology and other miscellaneous issues. In each of the cases, respondents were required to grade the degree of problems they faced on a scale of 0 to 5.

The Ministry is planning to initiate follow-up measures based on the findings of the study.