NEWS ANALYSIS If hiking diesel prices and eliminating a part of the subsidy on cooking gas was big, allowing foreign investment in multi-brand retail, airlines, power-trading exchanges and broadcasting is bigger.
Manmohan Singh has gone for broke. Or at least that is what the spate of reform measures of the last two days conveys.
If hiking diesel prices and eliminating a part of the subsidy on cooking gas was big, allowing foreign investment in multi-brand retail, airlines, power-trading exchanges and broadcasting is bigger. Throw in the Rs.15,000 crore to be raised from disinvestment of some government companies such as Hindustan Copper, Oil India and RITES, and the picture is complete.
This is a “shock and awe” strategy aimed to confound the Opposition and coalition members not so well disposed to reform. There has probably not been a weekend like this since 1991 when concentrated doses of reform were unleashed over just 48 hours. That they will help deflect from the coal blocks allocation scandal is a big help and probably designed to be that way too.
The strategy appears to have been well thought out. FDI in retail is probably the stickiest of the measures but by leaving the freedom to States to implement it, as indeed it should, the Centre has taken the sting out of the Opposition and also its own partners such as Mamata Banerjee.
“The opening up to FDI is only an enabling framework, take it if you like or leave it if you don’t” is the message that the Centre is sending out. That as many as nine States and two Union Territories are in support for the measure is probably giving the Centre a lot of strength. The condition that half of the FDI should be invested in back-end infrastructure with the explicit statement that this excludes land and front-end buildings is an excellent idea. This will ensure that critical supply-chain infrastructure such as cold storages are developed.
FDI in airlines has been long pending but realistically speaking, foreign airlines are not about to swarm into Indian airspace after this. Certainly not given the mess that airlines such as Kingfisher are in and also the high costs of operations, notably fuel and airport charges. The relatively healthier ones such as SpiceJet might benefit from this but here again we have to wait and watch given that the major airlines such as Lufthansa, Emirates and Singapore Airlines, who have the financial muscle, are not too excited by the developments.
The broadcasting industry is also thirsty for FDI plunged as they are in red ink and don’t be surprised if the news channels gush over this particular reform measure.
The icing on the cake for the markets, which rose in anticipation today and will in all probability zoom up again on Monday, is the proposal to disinvest in some PSUs. The market has been starved of good IPO offerings in the last one year and more and sale of equity in units such as Hindustan Copper and OIL should inject a dose of steroids.