Big bang reforms come in a new wave

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Under fire from many quarters over its so-called 'policy paralysis', the Manmohan Singh government swung into action on Friday to usher in big-ticket reforms in several areas.

In a new wave of surprisingly bold decisions, the Cabinet cleared contentious issues ranging from 51 per cent foreign direct investment in multi-brand retail, allowing foreign airlines to buy stakes in local carriers and raised the FDI cap for broadcast carriers on Friday.

Reforms are back big time just a day after the government had come under heavy fire for raising diesel prices by Rs 5 per litre and capping subsidised LPG cylinders to six for every household in a year.

The Prime Minister, who spoke of the time having come 'for big bang reforms', seems to have pushed the clock back to the early '90s when as finance minister in the Narasimha Rao government helped India awake to a new era of reforms in allowing the economy to join the global.

The government also approved disinvestment in four PSUs — Hindustan Copper, Oil India, MMTC and Nalco — which may help to raise Rs 15,000 crore.

Trouble erupted within the UPA immediately after these decisions were announced, with the Trinamul Congress issuing a 72-hour deadline to the government to roll back the diesel price hike and FDI in multi-brand retail. But in a mood to take the bull by its horns, Prime Minister Manmohan Singh told his Cabinet colleagues, “If we have to go down, we have to go down fighting.”

Importantly, on multi-brand retail, the Centre has left it to state governments to permit global retailers to set up outlets in their states. It has also relaxed sourcing norms in single-brand retail as sought by several international investors.

Any firm seeking waiver of the mandatory 30 per cent local sourcing norms will have to set up a manufacturing facility in the country. This will help many foreign watch makers and textile manufacturers who want to enter India on their own.

States to take a final call

The government on Friday allowed FDI in multi-brand retail after it was held up last year due to political pressure. However, it has allowed state governments to take a final call on allowing them in their respective states.

The maximum foreign investment allowed in multi-brand stores would be 51 per cent.

“Intense stakeholder consultations took place and those who were consulted were farmers, traders, civil society members, apex chambers and state governments. All views were ascertained,” said commerce and industry minister Anand Sharma.

The government had last year in November opened multi-brand retail to FDI but was later on forced to hold it back due to political pressure from with the UPA and the Opposition.

Mr Sharma said that decision on allowing FDI in multi-retail was never rolled back but paused for consultations and consensus building. The notification on the decision, the minister said, would be issued soon.

Mr Sharma also reiterated that foreign retailers planning to enter the multi-brand segment would have to invest a minimum of $100 million with 50 per cent of it in rural areas.

The firms will also have to source 30 per cent of their products from micro and small and medium enterprises where FDI is 51 per cent and above.

Under the norms, 50 per cent of total investment will have to be invested in backend infrastructure within three years of the induction of FDI.

“In the urban areas, they will be allowed to open stores only in cities with a population of more than one million, while in the case of hilly states, it will be up to the state governments,” Mr Sharma added.

FDI in airlines finally takes off

India allowed foreign airlines to buy stakes of up to 49 percent in local carriers in a long-awaited policy move, providing a potential lifeline to the country’s debt-laden airlines by opening up a fresh source of funding.

Friday’s decision, coming on the back of a controversial diesel price hike on Thursday, is likely to intensify conflict within the ruling Congress party coalition, with its own allies previously blocking such a move.

“This is a very positive step,” said Amber Dubey, head of aviation at KPMG India, a consultancy. “I don’t expect a flurry immediately... but there will be interest. A lot of people have been watching.”

Newly affluent Indians, with increasing disposable incomes, have already sta-rted treating flying as a mode of transport rather than a luxury, providing a massive local market.

However, any global carrier eyeing a stake in an Indian carrier must weigh up the benefits of a market with high long-term growth potential but one that has been squeezed by high costs and fierce price competition.

Praful Patel, India’s heavy industries minister, said that foreign carriers would be allowed to take a stake of up to 49 per cent in local airlines. Previously investment by foreign airlines was not allowed. The 49 per cent limit includes both foreign direct investment and foreign institutional inve-stment, according to a government document.

Ailing Kingfisher Air-lines, which was India’s No. 2 local carrier a year ago but has since grounded most of its fleet, has lobbied hard for this move in hopes that it can attract a foreign airline investor.

With global airlines buffeted by the European debt crisis and high fuel costs, cash-rich Gulf carriers such as Dubai’s Emirates, Qatar Airways and Abu Dhabi’s Etihad are seen as the most likely buyers of stakes in Indian carriers, analysts say.