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Business News/ Opinion / Online-views/  A clearance, just in time
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A clearance, just in time

A clearance, just in time

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The decision by the Union ministry of environment and forests (MoEF) to give a conditional green signal to the $12 billion Posco steel project in Orissa is exquisitely timed. It will hopefully send out a strong signal that India continues to be open for business and environmental clearances are not the latest version of the unlamented licence-permit raj.

To its credit, the ministry under Jairam Ramesh is no longer the money-making racket it once was. But its activism often resembles regulatory overreach; even the Posco decision hinges on the South Korean company agreeing to put aside 2% of its annual net profit for social welfare programmes in local communities. It is not clear under what law the ministry of environment can make such demands to shareholders. Will this be a precedent for the clearance of other large industrial projects? Or is the environment ministry empowered to use its discretion in imposing conditions on how corporate profits should be used?

Yet, the conditional clearance given to the Posco project after a five-year delay is welcome. Even a neutral agency such as the Reserve Bank of India hinted in its recent economic review that the policies of the environment ministry in sectors such as mining, integrated townships and ports have hurt investor sentiment. The United Nations Conference on Trade and Development estimated in a January report that foreign direct investment (FDI) into India fell by one-third in 2010, down at $24 billion. This fall comes at a time when FDI into other Asian economies is growing.

The fall in FDI could not have been more ill-timed. India needs foreign capital inflows to fund its growing current account deficit, which is at levels seen in the crisis months of 1991. FDI is a stable source of foreign capital. India is dangerously increasing its dependence on more volatile forms of capital, such as portfolio inflows and short-term debt. The Posco decision has to be seen against this macroeconomic backdrop.

There are strategic gains as well. In a statement on Monday, Ramesh said, “… projects such as Posco have considerable economic, technological and strategic significance for the country," adding that at the same time India’s green laws “must be implemented seriously".

As part of its Look East foreign policy, India needs to deepen its friendship with countries such as South Korea that are in China’s backyard. It is an open secret that the South Koreans have been looking at a litmus test of our friendship, and have been disappointed at the way the Posco project has been caught in a regulatory logjam.

Environmental laws need to be respected, but we hope that the Posco decision tilts the balance towards development and away from the ideologues of noble savagery.

Will the Posco clearance signal that India remains a business- friendly country? Tell us at views@livemint.com

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Published: 01 Feb 2011, 07:48 PM IST
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