Since coming to power, Andhra Pradesh State Government has cancelled or put on hold a number of high-profile State contracts and projects, many involving foreign partners who now face huge losses.
Arguments in favour –
Officials say reviewing commitments made by the previous government will increase accountability and decrease corruption in the State, but outside critics fear that the goal is to refashion deals to benefit new government officials and their supporters.
- In such cases, potentially at risk is the reputation of business-friendly states of India.
- Without investments, it will be harder for the state to raise the revenues it needs for social programmes and economic development.
- Further, if more states follow suit, the dependability of India as a foreign direct investment destination may be negatively affected.
Why is it such a bad idea?
- First, cancellations risk exposing the State to potentially costly and damaging legal challenges by the investors who have made commitments to such investments.
- Second, investors look to the overall commercial environment before deciding whether to commit funds. Investors may regard the number and fast pace of dismantling prior government policies and programmes, no matter how justified, as signals that the state is changing from an ease of doing business leader to a less transparent, predictable, and open economy.
- Third, any new Indian State government must take into account the Union Government’s encouragement of competitive federalism. Increased numbers of potential Indian business destinations mean that investors can look elsewhere if things in any State get tough.
What should be done?
- States should rather create governing rules and bureaucracies that are more durable than any one leader or administration.
- Establishing procurement regimes that allow for open tendering, stakeholder engagement, and outside audits would reassure domestic and foreign investors that governments are fair and open to all for business.
Way forward –
Newly-elected governments certainly have the right to review potentially unjust or unwarranted deals. However, a State must be careful to provide explicit and clear evidence when making its case to trigger such reviews; it must also make clear which prior projects were reviewed and found to be sound.
Source – The Hindu
QUESTION – With the change in political leadership, the governments have been reversing the decisions of their predecessors. How justified is it? Examine the arguments on the basis of merit.