However, the committee has not been named National Investment Board (NIB) as was proposed, thanks to a majority of ministers raising objections to naming the committee NIB.
The committee will be headed by the Prime Minister.
The government hopes the new body will help to increase investment in an economy that is likely to slow in fiscal 2012/13 to its worst pace in a decade. The Prime Minister's chief economic adviser sees full-year growth of 5.5 per cent to 6 per cent.
Infrastructure companies have pressed for the creation of such a board to speed up hundreds of delayed projects. Regulatory hurdles, such as delayed land acquisition and environmental clearances, have held up projects worth over Rs 2 lakh crore in the road, power, coal and mining sectors alone, according to government data.
However, due to opposition from within the government, the powers of the panel have been diluted and it will not be able to directly clear the projects.
It will be up to individual ministries to approve projects, but where there are delays, the new panel will have the authority to intervene. It will not, however, be able to overturn any decisions made by the Environment Ministry.
A typical infrastructure project requires clearances from 19 federal ministries and, on average, 56 authorisations on issues ranging from the environment to defence. The whole process takes up to 24 months.
In early October, Environment Minister Jayanthi Natarajan had written to the Prime Minister, strongly objecting to the Finance Minister's proposal to set up the NIB. NDTV had accessed Ms Natarajan's letter to Prime Minister Manmohan Singh, in which she asked him to intervene, and wrote, "This concept is unacceptable. The NIB has no constitutional authority to decide on the failure of any minister... when the Minister of a Ministry takes a decision, there is absolutely no justification for an NIB to assume his/her authority. Nor will the NIB have the competence to do so."
Besides, at the Cabinet meet today, it was also decided that the Cabinet Committee on Infrastructure will be dissolved and its powers vested with the Cabinet Committee on Economic Affairs (CCEA).
Sources tell NDTV that several ministries, besides environment ministry, had been raising objections to the proposal of setting up a committee on investment. The Defence Ministry has been saying that timelines are not feasible where matters of national security have to be considered. Also, the Ministry of Mines feels it will lead to legal complications, While the environment ministry has reiterated that such a plan is ill-conceived and not likely to meet achieved objectives.
Replying to a question in the Lok Sabha last month, Finance Minister P. Chidambaram had said there were over 100 projects, each involving investment of Rs. 1,000 crore or more, that have been delayed for various reasons.
"The main purpose is to oversee and monitor large projects which will give a fillip to India's economic growth. Our problem is not conceptualising projects. Our problem lies in getting numerous clearances and getting the project off the ground within a reasonable time," Mr Chidambaram said.
He also said that similar arrangements were in place in countries like Japan, Indonesia, Malaysia and Thailand. "It will monitor projects, advise ministries and help ministries concerned take a decision," he said.
The proposed body will not be a substitute for the Foreign Investment Promotion Board (FIPB), the Finance Minister had clarified.
With inputs from agencies