Monday, March 25, 2013

Chronicles of India’s FDI Travails

After a long and Gruelling Paper Trail, POSCO got a Clearance by The Ministry of Environment & Forests recently. Does this Indeed mean more Clarity for Future FDI Projects in India?

January seems to be assuming a special significance for The Pohang Iron and Steel Company (POSCO). It was over an year ago on January 28, 2010, that Posco was placed in an elite league by the Canada-based ‘Corporate Knights’ magazine and ‘Innovest Strategic Value Advisors’ at the World Economic Summit in Davos. This was the list of 100 companies that are likely to survive the next 100 years, broadly based on “the strength of their relationship with stakeholders, value of their innovations and probity of their financial actions”.

This year, on January 31, 2011, POSCO was ‘rewarded’ for its survival instincts in India. Environment Minister Jairam Ramesh, who has been widely perceived as an exceptional minister due to his disregard for exceptions with respect to companies and environment issues, decided to indeed make an exception with POSCO and give it conditional clearance (despite committee recommendations to the contrary)! That, in essence, meant a shot in the arm for POSCO’s survival bid in India and a great step forward for the 12 MTPA steel plant in Jagatsinhpur, Odisha and some $12 billion in FDI for India.

For Ramesh, it is a redemption of sorts, ever since he developed an anti-development image since he refused to give clearance for the Vedanta Aluminium mining project in Niyamgiri. For companies looking to pump in FDI in India, it is a case study to cherish, as one company manages to negotiate through India’s legal, political & bureaucratic maze. But they would also like to understand what factors were so starkly dissimilar in the two cases of POSCO and Vedanta. When it came to looking at economic rationale for these two projects, it’s like finding hay in a haystack! What factors led to Ramesh viewing them in different perspectives? The answers run into multitudes of pages of government and legal reports, company responses, community perspectives, NGO interventions, political motives, et al. B&E attempts to decode the fine print in as concise a form as possible.

The ‘Green’ Angle
Both projects were reported for environment violations by separate panels under the environment ministry. Around 3,586 acres of land sought by POSCO is government land and the rest was private land. Within the government land, around 2900 acres is deemed forest land (as per ancient records), but a report by Meena Gupta, part of the four member panel under the ministry confirmed, “Though POSCO is also to be located on forest land, the area recorded as forest is mainly sandy waste...” But other committee members felt that forest land should not be diverted at all. In the environment context, POSCO did not have the luxury of making violations, since work hadn’t started! But concerns were highlighted in the report, like possible scarcity due to water supply to the plant from Jobra barrage & destruction of flora & fauna due to the captive port at Jatadhar Muhan, which is so close to Paradeep.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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