Prime Minister's Council on Trade and Industry

The constitution of the Task Force emerged from the discussions which the Prime Minister’s Council on Trade and Industry had, on the 18^th September, 1998. The Task Force was entrusted with the exercise of interacting with the concerned ministries and departments and to recommend implementable action plans in the area of administrative and legal simplifications.

The Task Force, within the time available, has made best efforts to examine various issues and would like to underscore the fact that this report is by no means exhaustive and conclusive, but is an effort towards creating an on-going and continuing bilateral effort on the part of the industry and the Government to bring about reforms and improvements in matters of administrative and legal procedures which impact industrial growth and climate.

The Task Force, before embarking on its mission, made enquiries to ascertain if in the immediate past, any other group had undertaken a similar exercise. It came to the knowledge of the Task Force that on 8^th May, 1998 a Commission had been set up with the approval of the Prime Minister, under the chairmanship of Shri P.C. Jain, retired secretary to the Government of India to undertake review of the administrative laws and regulations, to identify laws which required amendments and suggest changes in the procedures to make them transparent and predictable.

The Task Force is given to understand that the said Commission held 43 meetings, interacted with representatives of trade and industry as well as various ministries and departments, and a final report was presented to the Cabinet Secretary on 30^th September, 1998. The Task Force has learnt that a copy of the entire report of the Commission would be available in the later part of November, 1998 after it is accepted by the Government.

However, the Task Force has ascertained that the said Commission has recommended repeal of over 1300 central laws which are outdated and redundant. The said Commission has desired that expeditious amendments must be considered in respect of a critical list of about 110 laws and that ministries and departments should compile information on its working in the form of manuals. It has also made specific proposals on the regulatory frame works relating to various sectors, besides stressing on the need to provide information to the public on rules, regulations and procedures. The said Commission spent over 5 months in preparing its report and it appears that a lot of ground, which this Task Force hoped to cover, has already been covered by the report.

Keeping in view the above report which is pending before the Government and the various representations made by different bodies on diverse issues concerning the industry, this Task Force defined its role as that of an "augmentor" and given the time constraints, the Task Force decided to address itself to the most critical concerns of the industry than to embark on a larger enquiry.

The Task Force, through its representatives, interacted with the various Ministries and Departments at Secretary level, apex bodies like CII, ASSOCHAM, FICCI, Madras Chamber of Commerce and Industry, Federation of Karnataka Chamber of Commerce and Industry. Meetings were also held with professionals in the industry, practising advocates and Company Secretaries to ascertain their view point on various issues and concerns. The list of people, with whom the Task Force had interacted are listed in Attachment I.

The information collected from different quarters was evaluated, issues of individual concern were eliminated and those issues where there was an emerging consensus were further examined in the context of the prevailing systems and procedures against the expectations of the industry.

Executive Summary

The economic liberalisation initiated by India in 1991 has very quickly transformed the Indian Industrial scenario from a regional character to a global one. Today Indian industry has to increasingly compete with global specialists in all the industrial and service sectors, save those, which are still controlled.

Globalisation means Global Markets and Global Capacities. The markets expect products delivered, to have world-class Quality. Having established this, they demand Price and Service. This is the differentiating factor, which separates the Winners from the Losers in industry.

Indian systems and procedures are designed with a notion that checks and cross-checks are required at every-stage. Enormous managerial talent, time and energy of Indian companies is diverted to cope with the systems and procedures, as compared to their international counterparts. In an extremely competitive international scenario, Complex Systems and Procedures have a significant bearing on the lead time to deliver to the customer, while imposing additional costs on the Indian supplier - affecting both price and service. The major concerns of industry in this context are as under.

Large number of clearances / permissions required

Complex regulation governing day to day functioning

Multiple agencies regulating operations functioning independently

Lack of co-ordination between various governing agencies

Frequent changes in policies / procedures / tariff structures

Unpredictability of changes

Lack of clarity on issues between Centre and States

Transaction oriented approach of the system instead of a corporate approach, leading to increased costs and delays

Lack of openness and transparency in communication and providing information

The approach of the Task Force has been to focus on the critical concerns of industry, without disregarding certain micro issues that are of significant importance to a cross-section of industry. This was considered appropriate, keeping in view the reports made by various other Groups giving their recommendations on specific issues as well as the representations of Industry associations made from time to time, on matters of administrative and legal concerns and industry-specific issues.

The significant recommendations are listed topic-wise in the following sections.

Investment Promotion: The Investment process in India is indeed cumbersome, leading to considerable delays and consequently impacts the economic fundamentals of the investments. The "delay risk" for Indian projects is significant. The Task Force has examined the process in countries like Thailand and Malaysia, which in the globalised economy compete with India for investible capital. The Board of Investment in Thailand is understood to have been singularly responsible for attracting a large amount of capital into that country, by providing a unified approval process. The Task Force has suggested the formation of an Investment Promotion Board (IPB) in India, which is quite different in form and features from the present FIPB. The Task Force has detailed out the Constitution, Features and Purview of the proposed IPB in the report, which is summarised here.

IPB should comprise the Secretaries (or their nominees) of all key ministries at the Centre like Ministry of Commerce, Finance, Industry, Environment and Forest, the Chairman of CBDT and CBEC and the Secretary from the PMO, as its permanent members. In addition, the Concerned Administrative Ministry and the Departments whose approvals are required for the given project will be represented. They will be joined by their counterparts from the State in which the project is being set up. The only difference would be that as in the case of Secretary from PMO’s office, the State counterpart will be a Secretary or Officer on Special Duty in the Chief Minister’s office.

The IPB will be a unified agency for approval of project proposals. The IPB will be the sole interface between the promoters and the concerned ministries / departments and any matter that requires clarification or a decision in respect to inter-ministerial or Centre-State issues must be addressed only to the IPB. The IPB will ensure that the recommendations from different Ministries, independent of each other, are made in parallel so that it can grant a comprehensive approval.

In order that the IPB is seen as the agency responsible for granting approvals on a composite basis, it is only appropriate that it be accorded a statutory status through a separate legislation. It should also have a permanent secretariat.

The IPB be empowered to prescribe the time frame within which the various Ministries and State Governments should forward their recommendations on a project to project basis. This would, no doubt, depend on the nature, size and location of the project.

It is the prerogative of the appropriate government to formulate the policy measures governing investment in different sectors. The IPB will be an agency that implements the policy and, based on the experience derived from the practical implementation of the policy, the IPB can provide valuable feedback so that the government can revise the policy measures appropriately.

All projects, promoted by Indian and/or foreign entities, involving an outlay of or in excess of Rs. 500 crores should be referred to the IPB and depending on the experience the limit can be revised downwards to bring in more projects within its purview.

The Task Force has taken care to understand the peculiarities of the Indian Governmental structure, while sketching out the IPB. This body, the Task Force believes, if given the necessary mandate and powers, can play a vital role in providing rapid clearances to projects, especially large ones.

Restructuring and Reorganisation: Restructuring and reorganisation has become imperative for many Indian industries and in fact would, in the coming years, become common place in the Indian corporate landscape. This is being driven by the need for consolidation in fragmented industries, or hiving off unrelated business, or realignment of the same business spread over multiple corporate entities in an industrial group.

Corporate Laws governing restructuring and amalgamation have been examined and several ways to ease the process are suggested in order to reposition Indian industry to face the challenge of globalisation.

The newly introduced Companies (Amendment) Ordinance,1998 which has a significant bearing on the Indian industry has also been critiqued.

Rationalising or exempting from Stamp Duty Restructuring, Amalgamations and Reorganisation of business is recommended.

Insertion of suitable provisions for filing a single petition instead of multiple petitions concerning reorganisation and restructuring has been recommended.

Need for establishment of a separate Commercial Insolvency Tribunal has been stressed and the idea of dispensing with BIFR has been mooted.

Labour Issues: Labour is an area of concern and growing importance to the Indian industry. Key issues pertaining to contract labour, right-sizing manpower and closure of business are addressed.

The Government must seriously consider amending the Contract Labour Act, emphasising more on regulation than abolishing contract labour, particularly in areas which are unrelated to the core activities of an establishment.

There should be provisions to allow industry to shed the extra manpower, upon payment of certain determinable compensation.

The provisions of Chapter V of the Industrial Disputes Act should be made applicable only to industrial units employing more than 1000 people.

The mandatory requirement of Director being the Occupier needs to be dispensed with and instead the person having ultimate control over the affairs of the Factory should be allowed to be nominated as Occupier by a resolution of the Board.

Environmental Issues : This is an area of importance to the nation in which industry also has a responsible role to play. However, industry finds that environment clearances have become an enormously uncertain element in the investment process in the country.

Corporates of good standing must be allowed to set-up industries on the basis of the Environment Impact Assessment report from specified agencies known for their expertise in the field.

Ministry of Environment and Forest should simplify the formats for environmental clearance, limit public hearing to only hazardous industries and prepare a list of accredited consultants.

A National Forest Fund must be created, which will obviate the need to go through a long drawn procedure for acquiring land for compensatory afforestation, by allowing projects to offer suitable compensation to this fund.

In the case of large infrastructure projects being put up for bids by the Government, the entire environment assessment must be completed by the Government (at a cost to the winning bidder) prior to inviting bids, to speed up the process.

Taxes and Duties: Enormous managerial time and energy is lost in dealing with the myriad procedures. The presence of a large number of taxes / duties with complicated inter-state issues lead to evasion by many industries.

The Government must seriously look at eventually moving to a Value Added Tax (VAT) regime. To achieve this, the Government must begin with broad-banding the existing indirect tax structure.

Dumping is another major concern of industry, especially in these recession prone times. The 12-18 months process in establishing dumping results in serious economic consequences to the Indian industry. Further, unlike the US, the Indian industry has to prove dumping to obtain relief from the Government. The time has come for enacting a comprehensive legislation dealing with the subjects of imposition of dumping, safeguard duties and quantitative restriction. The process of imposition of Anti-dumping Duty should be compressed to a period of three months.

A Green channel for exporters based on self certification and Record based control in case of both Excise and Customs Duty is recommended. A beginning can be made with 5 industries where imports and exports could be permitted without the rigours of existing procedures.

Budget Process: The Budget, and to a lesser extent the Exim policy, in India is an anxiously awaited exercise for the Indian industry. The annual policy changes, especially with regard to duty structures, introduce uncertainity and surprise in the planning process of industry.

Long term economic policies will greatly help Indian industry in its planning process and will provide a stability, which its counterparts in other countries enjoy.

The existing duty structure has to be simplified, broad-banded and spelt-out over the long-term, i.e. 3 to 5 years. It should then be brought into effect by means of a Finance Bill which would be different from the Bill which is annually tabled before the Parliament as part of the budget exercise.

The practice of issuing notifications making frequent changes that lead to problems of interpretation and implementation should be very sparingly used only to meet certain specific contingencies.

World Trade Organisation : The Task Force recognises that India will be increasingly under compulsion to follow the policies adopted by the developed nations, in particular the G15 countries, and it cannot afford to isolate itself from the global community. Integrating the national economy with the global economy is a necessary concomitant to liberalisation and Indian industry will have to go through a phase of readjustment and reorientation.

Since the WTO agreements would be coming up for discussion by end 1999, an opportunity must be seized to review the agreements involving the Indian industry and to generate a debate on the issue.

Information Technology: IT has a vital role to play in easing the systems and procedures of any organisation, and the Government is no exception.

The Government should integrate the various Ministries at the Centre as well as the State Governments while providing an IT interface to industry and public.

All Ministries / Departments to have their own web-sites regularly updated to provide reliable and comprehensive information about their working and portfolio.

Judicial Reforms: In the view of the Task Force this is overdue and it is time that the Government acted upon the recommendations made by successive Law Commissions.

Commercial Courts are required to handle corporate litigation which is on the rise.

The Government can also examine with industry and industry associations, the establishment of "Chamber Adalats" as an Alternative Dispute Redressal mechanism.

Create Indian Judicial Services, on the lines of the Indian Administrative Services to create a talented cadre of judiciary, supported by good working environment and better remuneration package.

Establish National Law Schools in the East, West and the North zones of India, based on the existing Bangalore model.

Administration of Criminal Justice is to be enforced to contain corporate frauds.