Worried over the declining growth rate, the large supply constraints on many fronts and a negative perception of India among the intelligentsia and industry, the Prime Minister’s Office (PMO) has proposed the setting up of a special purpose vehicle (SPV) for accelerating investments in the infrastructure, mineral resources and oil and natural gas exploration sectors.

Acknowledging that the “licence raj” has been replaced with a “clearance regime,” where both the private and public sectors had to wade through unending clearances before projects actually take off, the PMO hopes the SPV will help cut short their agony.

A meeting on this issue was taken by Principal Secretary to the Prime Minister Pulok Chatterjee on May 10.

“In the context of the growth rate of the Indian economy falling below 7 per cent in 2011-12 and the large supply constraints that are appearing on many fronts, there is an urgent need to boost the

investment rate, which would translate into both higher output and better growth rate. This is being articulated by economists, industry groups and the media. While issues relating to availability of funds for investments need to be tackled, there is also a need to address some of the concerns relating to the actual grounding of investments into concrete projects,” says an internal note.

The note acknowledges that one of the persistent problems being faced whenever there is an attempt to accelerate investments from the private sector is the delay that occurs in securing clearances from multiple agencies.

For example, the note points out that at least 58 clearances are needed at the various departments and Ministries in the State/Central/local levels for setting up a power project.

Floating of SPV

The PMO has proposed that one way of getting around this constraint is to float a SPV, incorporated under the Ministry concerned, with the specific task of securing clearances.

The SPV will become the sponsor of the project and be responsible for securing all clearances before the project is put up for bidding. The SPV will be responsible for identifying projects/blocks, finalising the concept/design, if necessary, firming up the outlines of the proposal, securing clearances and managing the id/auction process. “In a way, the SPV would be hand holding project proposals, bringing them to a certain level of maturity and then pushing them into bidding pipeline. So would be the case with licenses for exploring/extracting petroleum and natural gas or other mineral resources,” the note states.

It says there will be many advantages coming in this approach. There will be an increase in the price realised from a concession or award as investors need not factor in the cost of clearance-related delays. There will also be a dramatic reduction in delays in grounding projects or commencing exploration work.

Major change

“The SPV approach would be a major change in the public systems’ mindset, moving the responsibility of obtaining clearances from the private party to the government. It would influence investor sentiment in a positive way,” it says.