NEW DELHI: After months of dilly-dallying, UPA mustered courage on Friday to throw open the gates to foreign investment in a host of sectors considered political no-go zones like multi-brand retail and civil aviation in a bid to dispel the perception of policy paralysis.
This will pave the way for the much-awaited entry of foreign retail giants such as Walmart, Tesco and Carrefour into the $450 billion retail market, although their footprint will be limited to million-plus cities in states which have agreed to back the measure.
The decisions on Friday, along with a go-ahead for disinvestment in four PSUs to mop up Rs 14,000 crore, come within a day of the ruling coalition's decision to raise diesel price by a stiff Rs 5 a litre and cap subsidized cooking gas cylinders to six a year for every household.Taken together, they mark the most ambitious reform rush by the beleaguered government which has been roundly attacked for drift and diminished will to take bold measures. Faced with dwindling political fortunes, the UPA appears to have finally resorted to a flurry of actions aimed at salvaging the government's precarious finances and retrieving the sinking reforms legacy of the Manmohan Singh regime.
There were loud protests from non-Congress parties which may shortly call for a countrywide shutdown.
Govt driven by perform or perish mantra
But the government, driven by a "perform or perish" mantra, asserted it will stick to its decisions which have been taken after factoring in the resistance of allies and opponents. There is a recognition that the cost of inaction will be far more severe, given the worsening finances and real threat of a ratings downgrade. With experts and its own top leadership feeling that the window for decision-making is shrinking fast, there was an air of determination in the government taking on allies and outside supporters who have crippled its options for months
On the upside, government can expect a roaring reception from the financial markets on Monday as a global rally triggered by monetary easing in the US and Germany's green signal to a Eurozone recovery package ties in with Friday's initiatives. This can prove to be a mood-enhancer for UPA as it heads into state polls in Himachal Pradesh and Gujarat.
The decision to leave it to states to allow foreign retailers is meant to blunt the opposition. However, it has been sought to be balanced by improving the terms for the foreign players. Riders such as sourcing norms and rules to open stores in cities with a population of over one million have been tweaked for the benefit of foreign players, who can now pick up 51% stake in Indian joint ventures. So far, these players could only set up single-brand stores or enter the wholesale segment and sell bulk buyers such as canteens, restaurants and kirana shops.
Bowing to pressure from foreign players such as IKEA, the government eased sourcing norms for single-brand retail and permitted them to buy at least 30% of the goods from Indian industry, instead of the earlier stipulation that made purchases mandatory from small and medium units.
In case of civil aviation, where FDI is already permitted, the government has relaxed rules to allow foreign carriers to buy up to 49% stake in Indian airlines, a decision that throws a lifeline to ailing Kingfisher and other smaller players. PM Manmohan Singh sought support for the decisions, saying they were needed to tide over difficult times and make India a more attractive destination for foreign investors.
Times View
Those who are opposing FDI in retail on the grounds that lakhs of small traders will lose out are making big mistake. They are forgetting that the loss for these traders will be more than compensated by the gains to hundreds of millions of consumers and farmers who will benefit from cutting out these middlemen. The big retailers that will result from letting FDI in should hugely improve efficiencies in the retail trade and the economy can only benefit from that. Political parties may have reason to focus on only one half of the picture, but the aam admi should not be misled by this. The gainers should vastly outnumber the losers.
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