'Green' signals to lure more FDI?

Fri, 18 Feb Pre-Open

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Environmental clearances. After scams, this is the next big thing that has caught the fancy of Indian media over past few months. The former infact seems to have done more economic damage to the country's future in many respects than the latter. Especially if one considers the value of FDIs stalled due to delays in project clearances. In addition, the fact that unlike the telecom revenues, the projects have immense potential to multiply India's GDP growth. But as the scam ridden government gets ready for the Budget session, India Inc may see more green signals coming its way. Accused of turning a blind eye to economic reforms, the Prime Minister has assured of steps to get projects rolling. The first weapon in his armory seems to be the Environment Ministry.

At last count, the print media put the value of 582 projects that were stalled due to want of environmental clearances at Rs 920 bn. Several high profile projects have been at the Ministry's mercy for several months. This included the Navi Mumbai airport, the Lavasa hill-city project and the Posco Steel project. But the pace at which conditional and non conditional approvals have been awarded of late seem surreal. Almost appearing to be a damage control measure to make up for the loss of time for the projects.

Given that the government's ambitious trillion dollar Eleventh Plan infrastructure investments are way off target, it has little option. The private sector is seen as the only resource to help bridge the funding gap. So much so that its contribution is seen going up from 30% in the Eleventh 5-Year Plan to 50% in the Twelfth Plan. Thus speedy approvals for the private sector and FDI funded projects are in order.

At the same time, the government would not want only cheap hot money from abroad to flood Indian markets. While the FII funds may help India's current account balance, they are best kept away from the country's long term investments. Hence in order to balance out the steady FII inflows with FDI, more projects may be seen getting the environmental go ahead.

But will FDI at the cost of environment serve India' long term needs? We believe that allocation of critical resources like mining rights need to have much more than economic goals in mind. Protecting the country's green zones and ensuring a reasonable quality of ecological balance is paramount to an economy's prosperity. A softer stand on environmental issues may be seen as a near term positive. But we fear that such myopic visions tend to ignore more critical concerns about sustainability.