By Ramesh Kanitkar
In coma for 8- years, prime minister Manmohan Singh wakes up in 2012, and makes a bold declaration
“If we have to go down, we have to go down fighting but we can no longer stop the big bang economic reforms.” This bravado is intended to remove the perception that the UPA- II government was suffering from policy paralysis. The big ticket FDI reforms in retail, aviation and broadcasting, disinvestment in five PSUs, which will help the government narrow the fiscal deficit were the highlights of the reform package the government unfolded at a press conference, which was earlier cleared by the Cabinet Committee on political and economic affairs.
The announcements elicited howls of protests from the Trinamool Congress, the BJP and the Left Parties, particularly on multi- brand retail, but the government appeared unfazed.
The move allows global firms such as WalMart to set up shop with a local partner and sell directly to consumers for the first time, which votaries of FDI say could transform India’s retail market and tame inflation. The government has also decided to disinvest in five public sector undertakings, which will help mop up Rs. 15000 crores and possibly bridge the fiscal deficit.
The strong position taken by Singh is a replay of 2008 when he staked the survival of the UPA- I government over the civil nuclear deal with the US. That decision led the Left to withdraw support to the government, forcing a trust vote in the Lok Sabha, which the government won.
The prime minister chaired a full- fledged meeting of the Planning Commission on September 15 to finalize the 12th Plan to show where the country is heading and what are its priorities over the next five years. His message to the allies and the Opposition, which slammed the reforms, was quite clear that economic imperatives outweigh political expediency, as he did not want India to become the first country among the emerging economies to be downgraded as junk.
States like West Bengal ruled by the Trinamool and those run by the BJP were sought to be silenced on the decision FDI in multi- brand retail by giving them the discretion to take a call on whether to allow such stores in their territory or not. The Cabinet had cleared FDI in multi- brand retail on November 24 but its implementation was deferred for want of a broader consensus. The policy was being rolled out now with adequate safeguards necessary in “national interest.” Such retail stores will be set up only in cities that have more than one million people, as per the 2011 census, and that too within a 10- km radius of the city limits. States and union territories having no such big cities will set them up in the largest city.
There will not be much employment generation in these stores, but the foreign investors will be obliged to make back- end investment within three years in critical infrastructure that will benefit all stakeholders, especially farmers. Also the retail stores will be obliged to pick up at least 30 per cent of their procurements from small industries.
The government will constitute a high- level group headed by the consumer affairs minister to look into various aspects of retail trade to address the local kirana merchant’s fears of being stamped out. Thus far only owners of the brand were allowed 51 per cent FDI in the single- brand trade, but the new policy says even a non- resident entity having agreement with the brand owner could set shop. Meanwhile, those wanting to invest beyond 51 per cent will have to source 30 per cent of the goods from within India, preferably from small and medium industries and local artisans.
Multinational retailers like WalMart, Carrefour of France and Metro of Germany already have wholesale stores in many Indian cities, but they are not allowed to sell to walk- in customers. They can only sell to smaller retailers and through them to the households.
The industry was, however, elated at what information and broadcasting minister Ambika Soni described as ” path- breaking steps.” FICCI general secretary Rajiv Kumar said, “This is a big step. We welcome this move.
We hope the Opposition will not target the move as it is good for the economy.” Neither Kerala, a state where the Congress-led UDF is in the government, shared the enthusiasm nor did the governments of Bihar, Karnataka, Madhya Pradesh, Tripura and Odisha. Even ministers from Kerala preferred not to participate in the discussion on the issue while TMC representative Mukul Roy was conspicuous by his absence.
India is the second largest producer of fruits and vegetables between 2.25 to 2.35 million tonnes, the conservative estimate of losses of perishable items is anywhere between 35 to 40 per cent, which could be utilised through cold-storage facilities for back-end operations and remunerative prices for farmers and growers. Disinvestment is yet another facet of the reforms with the CCEA clearing offloading of 9.59 per cent equity in Hindustan Copper, 12.51 per cent in National Aluminium Company, 10 per cent in Oil India and 9.33 per cent in MMTC.
With general elections only a year- and- a- half away, political rivals like the BJP, allies like Mamata Banerjee’s Trinamool Congress and Mulayam Singh Yadav’s Samajwadi Party and unattached parties like the AIADMK and the Biju Janata Dal are bound to exploit the strong public sentiment against price hikes of diesel and LPG. Some of them are threatening street protests and there is a groundswell of resentment that only a brave and bold political leadership can withstand. So often in the past the ruling alliance has buckled under pressure and rolled back unpopular hikes. But this time the UPA will have to stand firm. This government has been accused of policy paralysis time and again within the country and even by the international media. Now that it has taken the plunge after much dithering, it would be watched by hawk eyes to see if it succumbs under pressure or holds out. The opposition will do everything possible to force it to buckle so that the government may look vulnerable and its credibility may suffer further erosion.
This is the time for the government to break out of its inertia. Power sector reforms have for some time been hinted at and are well on the anvil.
Reforms in power exchanges and increase in foreign investment in airlines will give the government the much needed confidence to forge ahead and leave the unpleasant memories of the “policy paralysis” phase behind like a bad dream. It is all too convenient to blame international economic forces for all the economic ills that the country faces but there has to be more constructive action on the ground. The scourge of black money needs to be curbed and wasteful expenditure by politicians and bureaucrats needs to be controlled if the government’s credibility has to be spruced up. The opposition also has to realize that some hard measures are inevitable if the economy is to be brought back on the rails. INAV
It has all along accused the government on dithering so when there is an effort to break out of inertia, it must be welcomed and supported. Rollback of subsidy is certainly not the way forward. Opposition for the sake of opposition will hamper economic growth of the country. INAV