1. The Panel of experts of Surya Foundation Think Tanks deliberated on the subject of Accelerating India’s GDP Growth and have brought out Issues, Challenges and some key recommendations, for attracting FDI vigorously, Enactment of the New Labour Codes and Land Acquisition Issues. These issues and the recommendations of the Think Tank are given in the succeeding paras.
ATTRACTING FDI VIGOROUSLY FOR ECONOMIC GROWTH
Govt Initiatives
2. Corporate tax rate has been reduced to 22% and for new units 15%. FDI under Automatic Route has been increased from 49% to 74% in Defence Acquisition and Insurance sector. 100% FDI has been permitted in commercial Coal mining sector. Govt has announced Production Linked Incentives Schemes (PLI) for 13 Sectors valued at Rs 1.96 Lakh Crores in 13 sectors. PLI issued in 2020 for mobile sector is expected to lead to cumulative production value of Rs 10.5 Lakh Crores with 60% exported in 5 years.
3.Government has announced the creation of an empowered group of secretaries, headed by the Cabinet Secretary, to hasten decisions on FDI and implementation. An Investment Clearance Cell (ICC) with a one-stop digital platform (linking 44 central ministries departments and 14 states) - providing a central Single Window System (SWS) is expected to be operational by 2021.
Ease of Doing Business (EoDB)
4. India’s rank in Ease of Doing Business rose to 63rd among 190 countries in 2021 from 131 in 2015. This includes improvements in getting permits, starting business, enforcing contracts etc.
5. It is gratifying to note that the country has registered highest ever FDI Inflow of US $ 74.39 billion during the financial year 2019-20. It is however necessary to pursue efforts further considering the overall potential the country has for FDI.
Comparison of FDI in China viz-a-viz India
6. Large sized SEZs were created by China in coastal zones e.g., Shenzan, Shanghai etc. (some larger than small Indian States) with world class infrastructure allowing location of Supply chain partners in proximity (reducing logistic costs) and permitting “cluster development”.
7. JVs between Chinese Diaspora and local residents were encouraged, with incentives like tax holidays, promoted exports, and wages being kept low. Flexible labor Laws were introduced. China heavily incentivized exports with 1.5% of its GDP.
8. Though India introduced SEZs earlier than China, these were much smaller in size and were not very successful. While China was concentrating on FDI on an import export basis, India’s efforts were more for import substitution. China also focused on affluent developed economies (US, EU, Japan) for exports to derive more margins. With regard to the structural reform process, China went deeper than India.
RECOMMENDATIONS
9. Foreign investors look for a business-friendly ecosystem with stability in taxation, industrial policies, import/export tariff, procedures, ease of repatriation of profits / closing of business. They also look for fair and fast dispute resolution mechanisms, equitable treatment viz-a- viz domestic business, protection of intellectual properties etc. In other words they look for a safe investment destination with minimal risk. The Govt has taken a step in this regard to amend the Taxation Act, 2012 nullifying the provisions for retro tax on sale overseas of assets in India prior to 28th May 2012. This will improve the perception about the India.
10. Development of fair, knowledgeable, fast response regulatory mechanisms, bringing in world class best practices is important. Free trade agreements must support its investment policy. Support to Exports is essential in policies. Setting up support infrastructure must precede FDI invitation. Central/State policies for FDI must be aligned.
11. India should emulate China in creating Coastal Economic Zones with world class infrastructure specially to boost exports. To address high cost of Doing Business in India i.e., high cost of capital, land and other utility services, the Govt should have a state agency acquiring the land providing the infrastructure including environmental production measures and leasing it to investors on affordable upfront terms i.e., provide a “plug and play model”. States, competing for investments will have to take a lead in this regard.
12. An analysis of FDI inflow into India shows these are essentially in IT and IT related services. As manufacturing accounts only for 13%, there is need to increase its share. While “Automatic Route” seems to be most popular in attracting FDI from MNCs, there is a case for Govt of India to set up facilitating institution/mechanism to enable the small- scale sector/MSMEs to forge JVs with smaller foreign players.
LABOUR REFORMS
Enactment of the New Labour Codes
13. The existing 29 Central Laws have been rationalized and simplified into 4 Labour Codes. The new Wage code fixes basic minimum wages at 50% of gross wages leading to higher benefits (in EPF, Gratuity, etc), 15 days severance pay for every completed year of service for retrenched (fixed term) employees with EPF/Gratuity benefit and 15-days wages as part of the “Re-skilling Fund” provision.
14. The Industrial Relation Code increases the threshold for retrenchment/layoffs/closure (without prior Govt approval) from 100 at present to 300 workers (allowing enterprises to grow in scale to become globally competitive) while retaining the notice and compensation requirements specified under the Industrial Dispute Act (IDA) 1947. A minimum 15-day notice period for strikes, as now required for utility services has been extended to all industrial establishments.
15. The Occupational Safety, Health Code provides for written employment orders, Night shift for women, annual health check-ups and travel to home benefits for migrant workers. The Code of Social security provides for universalization of social security to GIG, platform, informal workers. They will have access to PF, employer injury benefits, maternity leave etc. The new codes addresses “Ease of Doing Business” by allowing single registration (for all 6 central acts) / licensing / reporting compliance instead of multiplicity (due to multiple laws presently) in this regard.
RECOMMENDATIONS
16. The new labour codes address the twin objective of Indian industry reaching economy of scale, leading to global competitiveness with increasing employee welfare including their long-term social security. It attempts to include the informal sector as well in these benefits for the first time. It seeks to shift a segment of hitherto informal sector to formal sector of employment by recognizing “Fixed term employment” or encouraging “Flexible Labour laws”.
17. There have been reservations from employee sides that in increasing threshold of employees from 100 to 300 in Industrial Relations Code (IR Code) for termination / closure of unit without prior Govt approval, may lead to large scale closure and therefore the closure clause should be dropped from the Act. It will be advisable to allow the new central code and new state laws to operate for few years and from experiences gained, some amendments can be brought in later.
18. Govt. should bring in an “Unemployment Insurance Scheme” to sustain workers for a limited period till they get alternate employment. Besides funding by employers and some contributions by employees, Govt. should also contribute to the scheme. The Govt may bring out a paper as to how the universal social security schemes will be formulated and with their funding mechanism to elicit views from stake holders.
19. With the new definition of “Basic Minimum Wages” (at 50% of gross wages against 35%/40% present industry practice), financial impact will be felt towards retirement benefits, (Gratuity, Leave encashment and Superannuation) besides monthly payment on account of Employee State Insurance, Provident Fund etc. Industry has represented that this clause may be deferred during pandemic period. Govt can consider the implementation to be spread over a period of 3 years in graduated steps of 40%, 45% and 50%.
LAND ACQUISITION ISSUES
Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (LARR) Act, 2013
20. Compensation package under the Bill is upto four times the market value in rural areas and twice the market value in urban areas; the Bill provides compensation to those dependent on the land for livelihood; where acquired land is sold to a third party for a higher price, 40 per cent of the appreciated land value (or profit) will be shared with the original owners. This would be exempt from tax and stamp duty.
21. State has to conduct a Social Impact Assessment (SIA) and an Environmental Impact Assessment (EIA), to identify the families who would be affected in case of acquisition for Pvt. sector, PPP projects, 70% and 80% consent of Project Affected People (PAP) for Pvt. and PPP models. Project affected family includes farm labourers, tenants, sharecroppers and workers in the area for three years prior to acquisition.
Land Acquisition Ordinance, 2014 (since lapsed)
22. While retaining the LARR 2013, the Ordinance permits the government to exempt projects in these five categories viz. defence, rural infrastructure, affordable housing, industrial corridors, and infrastructure projects including PPP projects from the following provisions, through a notification e.g. Social Impact Assessment, Acquisition of irrigated multi-cropped land, return of unutilized land, and time period for retrospective application etc.
States success on Land Acquisition ( pre & post LARR 2013 )
23. Some states e.g., Tamil Nadu, Maharashtra, Haryana, Gujarat, UP, and AP have been quite successful in Land Acquisition by adopting liberal rates for acquisition, offering one job per affected family (in large acquisition, making PAP co-beneficiary in Land Pooling Policy (acquiring more land than required and making PAP benefit from future land price increase- either as instalment or lump sum etc. Haryana has in addition, introduced an incentive of 20% for “No Litigation Agreement”. Gujarat has appointed “The Centre for Environmental Planning and Technology University” to handle compensation issues instead of local district administration. Acquisition by consent and negotiations have proved to be a better route than compulsory process.
Special Interventions by State Govts bypassing LARR - 2013
24. State Govts (Tamil Nadu, Maharashtra, etc.) have attempted to bypass LARR 2013 by using their own state laws (prior to 2013 and derived from old British Raj Act of 1894) for hastening state projects.
25. Tamil Nadu assembly passed in 2014 an amendment to LARR 2013 inserting a new section 105 A which stated provision of LARR will not apply to land acquisition carried out under the present three states laws wiz under Harijan Welfare Schemes Act, 1978, Industrial Purposes Act, 1997, The Tamil Nadu Highways Act, 2001 (derived from 1894 Act). On being struck down my Madras High Court for not following LARR 2013. The Tamil Nadu Assembly brought in a retrospective amendment validating their earlier interventions but accepting liberal compensation provisions for LARR 2013. On appeal by litigants Supreme Court has reserved its judgement.
Experiences with National Highway in LA Act, 1956
26. NHAI is facing problems of compensation claims being brought after several years, needing a “limitation clause”. Status Quo Orders are often passed by High Courts on Land Acquisition proceedings despite Central govt declaration as per the Act.
RECOMMENDATIONS
27. Considering the complexity of issues above, it is advisable that the Union Govt. passes an amendment to LARR 2013, on lines of the lapse ordinance 2014 after holding consultations with infrastructure ministries and state govts. While retaining the attractive compensation provisions of LARR 2013 some exemptions for clearances can be given for select categories under public interest. The present hurdles faced by project authorities with regard to delays may also be factored in. In the compensation provision, the Govt. can consider an additional amount by way of annual payment for few years where land is compulsory acquired from marginal farmers/weaker sections with small holdings. This will enable the affected weaker sections some transitions support till they get alternative employment.
28. Though right to property is no longer a fundamental right but only a constitutional right, yet Right to life which is a fundamental right has been widened to include right to livelihood impacting the land acquisition cases. In view thereof to ensure that exemptions are not motivated by political considerations and constitutional safeguards are not bye passed the State governments should be required to pass a speaking order while granting exemptions under the Act which will be amenable to judicial scrutiny.
29. Considering scarcity of land (for agriculture) multiple use of acquired land must be attempted e.g., NHAI running elevated Expressway or Rail rapid transit system on the central verge, running utility lines along Highways, in case of buildings – multistorey concept, below flyovers, elevated highways – small marketing centers, warehousing etc.
Good information
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