New Delhi: In the boldest decision taken by Prime Minister Manmohan Singh in UPA-II, the government has bet big on crucial reforms that are bound to bring a big cheer from industry. However, the move has also put the government in troubled water politically with the Opposition and some key allies voicing strong differences.
Just like Manmohan Singh had put the survival of his government at stake over the Indo-US nuclear deal in UPA-I, he once again stood firmly to push bold economic reforms.
At the meeting of the Cabinet Committee on Economic Affairs (CCEA), the government on Friday cleared foreign direct investment (FDI) in multi-brand retail, single-brand retail, aviation, broadcasting and power exchanges.
In multi-brand retail, an issue that has been troubling the government for quite some time, the Cabinet decided to allow 51 per cent foreign direct investment. However, unlike the last time, the government has let individual states decide whether to allow it or not.
There is an opt-out clause in the FDI in multi-brand retail, which says, "Retail sales outlets maybe set up in those states which have agreed or agree in the future to allow FDI in multi-brand retail under this policy. This is an enabling clause. This means that no FDI in retail will be allowed in any state unless the state explicitly agrees to come on board and agree to the policy."
The Cabinet also approved the proposal of the Department of Industrial Policy and Promotion for amendment of the existing policy on FDI in single-brand product retail trading. The government permitted FDI, up to 100 per cent, in single brand product retail trading, subject to specified conditions.
Relaxing the norm in single-brand retail where FDI is above 51 per cent, the government said that while 30 per cent of the sourcing would have to be done from Indian companies, they may not be from medium and small scale, village or cottage industry. However, it said that it should preferably be done from them.
Notably, it was earlier mandatory in case of FDI over 51 per cent that 30 per cent sourcing should be done from small and medium scale, village and cottage industry.
In another major decision, the government approved FDI in aviation, allowing up to 49 per cent investment. The decision means that foreign airlines will now be allowed to invest as much as 49 per cent in the Indian carriers. However, this won’t be automatic as the companies will have to get clearance from the ministry and FIPB.
Also, according to 1937 aircraft rules, as many as three-fourth of the directors need to be Indian and the Chairman also has to be Indian. India has to hold substantial amount of investment in that airline.
The government, in a move to liberalise the broadcast sector, decided to raise FDI cap to 74 per cent in various services of the sector, except the TV news channels and FM radio where the cap of 26 per cent would apply.
The decision of the CCEA will apply to broadcast carriage services providers, including Direct-to-Home, Head-end in the Sky (HITS), Multi-Service Operators (MSOs) and cable TV to bring about uniformity.
Till now, 49 per cent FDI was allowed in cable TV and DTH while it is 74 per cent in HITS, which is a satellite multiplex service that provides TV channels for cable operations.
Among other segments, 74 per cent FDI was allowed in Mobile TV, which is an area of future growth. However, for TV news channels, current affairs, FM radio and content providers, the FDI limit will stay at 26 per cent.
India is estimated to have about 106 million households with cable and satellite TVs in India, of which 26 million use DTH and 80 million get feed from the cable network.
In another important decision, the government approved the disinvestment of five Public Sector Units (PSUs), including Oil India (10 per cent), Nalco (12.5 per cent) and Hindustan Copper (9.59 per cent).
The bold decisions by the government have already come under scathing attacks from the Opposition as well as its key ally, the Trinamool Congress.
Trinamool Congress chief Mamata Banerjee has in fact issued a three-day deadline to go for a rollback on its decision. The party said that it would protest against the move asking the government to review its decision.
TMC spokesperson Kunal Ghosh said, "We strongly oppose the move. we demand that the government should review this decision or we will protest."
Union Railways Minister and TMC MP Mukul Roy said, "We are opposed to FDI in retail. We will discuss on the future course of action."
According to sources, the Trinamool Congress is even considering withdrawing support to the UPA. Mukul Roy even called up Congress leader Ahmed Patel and conveyed the opposition of the party.
Another key ally, the Nationalist Congress Party (NCP), however, backed the decision saying it would provide a boost to the economy.
"FDI is retail will benefit the farmers and the common man," said senior NCP leader Tariq Anwar.
The Bharatiya Janata Party (BJP), meanwhile, condemned the move accusing the Manmohan Singh government of succumbing to "foreign pressure". BJP spokesperson Ravi Shankar Prasad said that the decision of the government would harm at least five crore people across the country.
"Inspite of serious opposition from within the Congress, its allies and nearly the entire Opposition led by the BJP, the government has seriously jeopardised the life, livelihood and employment of five crore people involved in retail trade in the country," said the BJP spokesperson.
The Left parties also expressed strong opposition to the move saying it would create further crisis in the country.
CPM leader Gurudas Dasgupta said, "This will not stimulate the economy, instead it will have adverse affect on small traders."
"Politically, the government is going down. The government under Prime Minister Manmohan Singh is responsible to the decline in the economy," he further said.
CPI leader D Raja called the move anti-national saying the party strongly opposed the move. He said, "This is a bad decision, we will oppose it. The issue was raised in budget session of Parliament and government said they would consult stakeholders before making a decision. Where was the consultation?"
However, the government stood firm on its decision and ruled out any possibility of a rollback on the decision. Addressing a press conference, Union Commerce Minister Anand Sharma said the decisions were taken after intense consultations with the state governments and industry.
"The consensus is there. For unanimity, we will have to wait for eternity," said Sharma. He further accused the BJP of going back on its stand on FDI, saying that the stands taken by the party were just due to its political ambitions.
The India Inc also welcomed the bold move by the government.
Terming it as a "big step", FICCI secretary general Rajiv Kumar said, "This is a big step. We welcome this move," adding, "We hope the Opposition will not target the move as it is good for the economy."
Noted industrialist Adi Godrej said the decision showed that reforms had restarted. "Opening up retail, civil aviation, broadcasting & power trading would help restore confidence," he said.
(With Additional Inputs from PTI)