Interestingly, this is not the first time that the minister is delaying approving of changes. Even prior to the actual issuance of the ordinance, Thambidurai delayed giving his assent for several months -- on at least two occasions, apart from several reminders from the PMO, the Prime Minister himself called Thambidurai to ask him to speed up things. On October 31, the day the ordinance was gazetted, the DCA had around 145 applications for investments and loans of around Rs 1,000 crore pending with it for several months.

Various chambers of commerce have pointed out that the ordinance which dealt with easing restrictions on companies for both inter-corporate loans and investments, is quite retrogressive and actually brings in several new controls on the freedom of corporates.

Thus, while companies were free to lend to or invest in subsidiary companies, the ordinance now brings this under the ambit of section 372 and states that companies have to get the permission of financial institutions (FIs) -- if they have outstanding loans -- before doing this. Similarly, companies were earlier free to give guarantees to other corporates -- this has also been brought under the overall ceiling of section 370 and 372. In other words, while corporates did not have to seek government permission for investments upto a certain level, by bringing in new clauses, their operational freedom has been further curtailed.

Worse, firms now have to get the specific sanction of a financial institution in all cases before making any investment or loan, regardless of whether or not it is above or below the specified limit. And the veto of any single director will block the passage of the loan/investment. Industry has been arguing that this is unduly restrictive since, in any case, all loans/investments are cleared by the company's boards in which the FIs have nominees. So what is the point in going to the FIs again for permission?

A memorandum from the Federation of Indian Chambers of Commerce and Industry (FICCI) also points out that while the idea behind giving all these new powers to the FIs is supposed to prevent corporates from indulging in fraud, the FIs themselves are guilty of being lax in preventing fraud in the past. Thus, most examples of siphoning off of funds through lending to group companies, have been in companies where FIs have had their nominees on the board anyway.

Besides, all this happened when government permission was required for making investments -- so obviously just putting more checks is not the solution. Besides, with strict penalties, including imprisonment, in the law, what is the need for such blanket approvals -- if the government catches fraud, let it punish the promoters?