L.N. Mittal of Arcelor Mittal on Investments in India, 8 January 2010

''We have not experienced this kind of growth and interest in investments in India before. neither the central government nor the states were prepared for such growth.''

- L.N. Mittal. CEO, ARCELOR MITTAL.

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The newspaper clipping is from the Economic Times newspaper, Mumbai- 8 January 2010.
Let's take a closer look at the issue.

Land acquisition delays, loads of red tape, pending environmental clearances.........and I think Mr. Mittal is quite exhausted and frustrated.

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At the outset, I must say that I agree with Mr Mittal. The Indian government is unprepared for the size and scale of investments that are currently being proposed and planned.

To the credit of the Indian government, a lot has been achieved since the early days of liberalisation in 1991. Sectors like IT, Telecom, Banking and Autos have come a long way since 1991! Many Indian companies have emerged as Indian Multinational corporations

The key issue that the government needs to address now is - to set a strong foundation for the next stage of development.

Many policies and regulations must be put in place before granting any permissions to business houses to set up new businesses. The rights of local communities must be protected and they must be compensated for land surrendered, before 'big business' moves in.

Here are a few of the contentious issues that need to be addressed.

• Land Acquisition rules: This has been one of the most debated issues that has haunted 'Special Economic Zones' (SEZs) from day one. Farmers and people residing in rural India are obviously not being adequately compensated for land surrendered. Politicians are misusing the sensitive issue of 'SEZ land acquisition' for election politics. Businesses commit to a project, only to realise later that they are just unable to secure the land for it. Rules regarding taxation / tax exemption of SEZs are also unclear. Then there is also the issue of the wasteful diversion of fertile agricultural land for SEZs.

• Telecom Sector policy: Whether its GSM vs. CDMA, the telecom companies vs. TRAI, spectrum allocation disputes or the debate and commotion over 3G auctions, there's always some confusion over the rules and policies in the Telecom sector. 2009 witnessed a bloody price war in the mobile telephony space as a number of new companies launched mobile phone services in the domestic market. With 3G auctions coming up, it's about time that the Telecom ministry clarify and set straight all regulations required for companies operating in this space.

• Environmental Clearances: Mining projects, petro chemical complexes and offshore drilling aren't exactly environmentally friendly industries. They are industries that are responsible for a lot of environmental damage, but on the flip side, they also provide numerous employment opportunities to people across the country. The government must encourage the setting up of economic centres and industrial townships across the country, to prevent overcrowding of major cities (by people from rural India seeking employment) and thereby ensure a more equitable distribution of wealth and employment opportunities. At the same time it's important to regulate effluent treatment practices of companies and the government must ensure that its rules and regulations are in place before companies set up shop.

• Power Sector: Despite the best efforts of public sector behemoths like NTPC, India remains a country that suffers from acute power shortages, with many states overdrawing from the national power grid. Recent initiatives like the Ultra Mega Power Projects (UMPPs) are still at the foundation stage and in many cases are grappling with land acquisition issues and fuel sourcing issues. Before these new capacities come on stream, the government will have to ensure that the transmission and distribution arms of the Power sector continue to invest in building up required infrastructure.

• Oil & Gas Sector : Whether its the Ambani vs Ambani KG basin gas dispute or the Cairn India Rajasthan cess dispute or the gas pipleine policy, there are many grey areas in this sector. Is natural gas pricing going to be partially regulated? Will sectors like Fertilizers and Power generatioin be given predetermined gas allocations? Which regulatory authority will be the final forum for settling disputes regarding the laying of gas pipelines?

• Railways: The Railway Container Freight sector continues to suffer from the after affects of the global meltdown of 2008-09. Private sector companies are just unable to compete with the estabilshed incumbent - The Container Corporation of India, a listed public sector enterprise. Delays and disputes over setting up inland container yards on land owned by the Indian Railways remain unresolved. Then of course comes the ambitious 'Rail Freight Corridor Project'. Here too, land acquisition issues and the ever increasing implementation cost structure and funding issues have resulted in this project being stalled at the drawing board stage for quite a while now. Recently proposed investments by the Japanese government too are at a very very early stage.

It's obvious that a number of issues and policies need to be sorted out before we invite more foreign direct investment into India

A lot needs to be done before India embarks on the next stage of her economic growth. It's not going to happen overnight.It will be gradual and quite chaotic, but we will eventually get there.

Both businessmen and stock market investors need to understand these and other issues before commiting to mega projects or long term investments in India.