The decisions, many of them politically sensitive, came a day after the government bit the bullet on fuel prices and raised the price of diesel and capped the subsidy on cooking gas to cut its fiscal deficit by Rs 20,300 crore.
The much-awaited reform measures follow consistently disappointing news on the economic front with GDP growth in the first quarter slowing to 5.5 per cent. Besides, dire predictions have been made that this rate could further fall to 5 per cent if the government’s policy paralysis persisted.
Friday’s decisions by the Cabinet and the Cabinet Committee on Economic Affairs also included allowing 49 per cent FDI in power exchanges — a move to attract more capital to the sector where exchange volumes account for only 3 per cent of the electricity sold.
The government also eased conditions for single-brand retailers to operate in India by doing away with the clause that makes it compulsory for such retailers to source 30 per cent from small and medium enterprises.
The announcement to open up the bulk of India’s $535 billion retail sector that employs about 30 million people to foreign investors such as Wal-Mart and Tesco was cheered by industry bodies as “restarting the reforms process”.
“The series of policy decisions announced by the government today signal that India is on the move. They send out a clear message to the global investor community that the government is committed to taking forward the next generation economic reforms. More importantly, they will boost sentiment within the domestic industry and provide much needed momentum to the economy,” said Sunil Bharti Mittal, Group CEO of Bharti Enterprises.
But the UPA’s key alliance partner Trinamool Congress was quick to slam the announcements. About ten months back, opposition from the party had forced the government to defer its decision to allow foreign multi-brand retail.
The Cabinet has accordingly modified its approval this time, giving states the leeway to decide if they want to allow foreign investment in the sector under their respective shops & establishment acts, within their territorial jurisdictions. Commerce and Industry Minister Anand Sharma told reporters after the meeting of the Cabinet that the “suspension of government’s decision (November 24, 2011) therefore stands removed”. Eight states and two union territories have told the Centre they support the plan to open the sector saying it will boost the farm sector and curb food inflation.
The Cabinet meeting chaired by Prime Minister Manmohan Singh put an entry-rider in multi-brand retail by setting the minimum investment at $100 million, of which 50 per cent has to be in back-end processes or in building procurement capacities in rural areas. Also, these stores can be opened only in cities with a minimum population of of one million, with a dilution for hilly states.
An ICRIER study commissioned by the Commerce Ministry in 2010 had found that India was ranked the third most attractive destination among 30 emerging markets for foreign retailers.
Analysts said the decision to allow Indian aviation companies to court foreign investors could provide a lifeline to Kingfisher Airlines, hugely trapped in debt, as well as others such as SpiceJet. India had so far allowed foreign investment in the sector but barred foreign airlines. Friday’s decision reverses an almost 15-year-old policy but comes at a time when the global airline industry is largely cutting back on expansion plans.
The PSU stake sales approved by the Cabinet include the sale of 9.5 per cent in Hindustan Copper Ltd, 12.15 per cent in National Aluminium Co, a 9.33 per cent stake sale in MMTC and another 10 per cent in Oil India Ltd.