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Nitty-Gritty Ministry

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Before the reforms, the ministry of commerce was one of the most efficiently corrupt ministries. Its policies were arbitrary and convoluted, and the ministry had no compunction about complicating them further. It was wont to make the most minor changes in the policies whenever they took its fancy. The changes were announced in unreadable notifications. The businessmen for whom the notifications were intended had to employ an army of liaison men, who would hover around the ministry, buttonhole clerks in the ministry, and cultivate their good opinion by fair means or foul. In return, the clerks would pass on notifications to the agents; if the means were generous enough, the clerks would also frame notifications that created profit opportunities for men of means.

Those who made a good living out of the licence raj were extremely upset with P. Chidambaram when he began to dismantle their byzantine rules in 1991. Now emotions have cooled, the corrupt generation has faded away, and the commerce ministry has cleaned up its operations to a substantial extent. Instead of making little changes in policies whenever it felt like, it makes them once a year in the case of trade policy and twice a year in the case of foreign direct investment policy. It has recently issued the fourth such biannual FDI policy.

Although the formulation of policy has become more transparent, the policy itself is still quite complex. This can be illustrated from the latest circular. Originally, the policy tried to restrict FDI in property development to "serious" investors by insisting on minimum area, construction, investment, and lock-in period, and local authorities' certification of completion. Then the government wanted to give priority to hotels, hospitals and export zones, so these conditions were waived for them. Now it has waived them for schools, colleges and old people's homes. Obviously, the government considers construction of these facilities desirable, and is using restrictions on FDI to channel it into them. But their desirability does not depend on FDI; if the government is keen on them, it should try and attract all investment, whether domestic or foreign, into it.

The policy has allowed foreign direct investment in apiculture. Its formulators obviously have no familiarity with bees. Hardly anywhere in the world do people specialise in bee-keeping alone; it is combined with or undertaken in the neighbourhood of the cultivation of fruit or flowers. No foreigner is going to come to India and park his bees in other people's orchards. Bee-keeping will attract no FDI unless foreigners are allowed to invest in properties where hives can be kept and nurtured. The government has a terrible aversion to allowing FDI in agriculture; it fears that foreigners will buy up agricultural land and turn Indian farmers into serfs. It only has to read its own census reports to know that the proportion of landless workers to farmers has grown steadily without any foreign investment; population pressure ensures a rise in landlessness. Irrational prejudices are quite characteristic of governments; they just have to be borne as a fact of life. But it is still not clear why the government cannot allow foreign investment in orchards; apart from increasing the supply of honey, it will bring us better fruit and flowers, and may lead to their export. Mangoes taste the same whoever owns the tree.

The decision to allow FDI in research and development in "biotechnology pharmaceutical/ life sciences" in industrial parks takes the cake in good-intentioned stupidity. Research and development costs money, and does not make money by itself. The government is allergic to foreigners making profits out of Indians; but there is no such risk with R&D. Indians are good at R&D. Starting with information technology, India has attracted R&D activity; many foreign companies do R&D as part of their business in India. There is synergy in R&D; R&D facilities tend to congregate in places like Bangalore. So foreign companies are inclined to locate their facilities close to others'. The government will serve no national purpose by favouring biological research, confining it to industrial parks, and targeting foreign companies to do it.

The reason why the commerce ministry churns out such thoughtless ideas is that it has done so for 60 years and cannot get out of the habit. Reforms did not change the mindset of issuers of licences; they simply abolished the issuers' jobs. But whatever  the department of industrial promotion and policy thinks, neither Indian nor foreign industry needs promotion any more; the country would do perfectly well without the department.

(This story was published in Businessworld Issue Dated 17-10-2011)