FDI Policy GoIndia

I feel bit relieved now. Let me call this “Rise of the Dead”. The once ridiculed for its inactivity the silent Manmohan cabinet has started taking bold and effective steps. The minister has delivered what the greatest minds (comprising of Civil society, APEX chairman, SMEs, regional directors and many more) have had drafted.

In the Press Conference by GoI (Government of India) Mrs Ambika Soni (Minister for Information and Broadcasting) and Anand Sharma (Minister for Commerce) have released the policy what can be called as New Economic Policy of 2012. Let me elaborate the points keeping in mind that the reader is an educated Indian.

The major decision taken as on 14th September 2012 is related to FDI (Foreign Direct Investment).

1. The government has allowed 51% FDI in retailing for multi-brand while continuing the 100% FDI in Single brand retail. The reason cited is to attract investment, create domestic ancillary industry and to create employment.

Q. Why FDI?

By the condition of mandatory minimum 30% sourcing from MSME (Micro Small and Medium Enterprises) will help encourage and revive Small Scale Industries of India like Handicrafts, Village and Cottage etc...Until now the products were made outside and sold at higher prices in India. Now even manufacturing will take place in India and this will help reduce the cost of produce thereby fewer prices on Consumer.

Q. How it will help farmers since agriculture is the backbone of this country?

India is 2nd largest producer of fruits and vegetable in the world. But our post harvest process is high (more than 30% and up to 40%). We need modern technology and remunerative prices for farmers, again FDI is the key. The produce of farmers when kept under cold storage will help earn price globally.

Q. Will these lead to disappearance of Kirana shops and unemployment?

Take China for example where the government had allowed FDI in retailing long back. Both Foreign retailers and Kirana shops (as we call in India) run side by side. People, however, have more choices- Increased Competition and better prices. This obviously is in favor of direct consumer.

2. The GoI has allowed 49% FDI for foreign carriers in Aviation Sector.

Lufthansa, for example, invests in aviation sector in India. If per customer Kingfisher faces a loss of Rs 100 then Lufthansa will support Rs 49 out of 100. This will help reduce the financial burden on Kingfisher. “They share profit as they share Loss”.

3. Up to 74% of FDI in Cable & DTH- Liberalization and rationalization of policy in broadcasting sector.

In which up to 49% is through automatic route. Automatic route means the FDI doesn’t need the permission from GoI. For investment more than 49% and up to 74% the foreign investor needs government approval through ‘FIPB’.

4. FII (Foreign Institutional Investor) is under automatic route while FDI is under government approval route. 

The government has allowed 49% of foreign investment in power exchanges (of which 23% is FII and 26% FDI).

5. Disinvestment of 5 PSUs: 

Disinvestment of 10% of paid up equity in Oil India Ltd.

Disinvestment of 9.59% of paid up equity in Hindustan Copper Ltd.

Disinvestment of 9% paid up equity in MMTC.

Disinvestment of 12.15% paid up equity in NALCO.

Disinvestment of 10 % of Railway equity held by GoI through IPO (Initial Public Offer).

Q. Why disinvestment?

Disinvestment is the way by which we give power in form of shares and bonds to the public. This is very necessary as it will boost the efficiency of PSUs (Public Sector Undertakings).

Q. How it will help in boosting our economy?

Fiscal deficit and Current deficit (~4.2% alarming) both have been increasing. International rating agency has warned us with our deficit. Till now we were selling textile and other products to earn foreign exchange. Even there FDI was helpful. Of the little we earned almost 50% is spend on buying Oil (Petrol and products). By the new FDI policy we will earn large amount of FOREX. Minimum FDI nvestment allowed is USD 100 million (Rs 550 Crore). The government plans to raise Rs 15000 Crore through FDI investment.

Q. Why Diesel price hike?

Some people reason that we cannot compare the Diesel price in the world with India. The loss shown by PSUs is not real as it is in comparison to international market and the international market price for Oil is deemed speculative. But considering the fact that PSUs were running at a loss of Rs 16 per litre (which after price hike of Rs 5 is at Rs 11pl) of Diesel is a deficit that is increasing. People need to understand that if things are not done now then there will be increase in FISCAL DEFICIT which will result into increased Inflation in future. Reducing subsidy is one of the necessary proactive steps.

CCEA (Cabinet Committee on Economic Affairs) in its meeting today decided to take these bold decisions.The points were already put up in the meeting held on 24 Nov, 2011. After 10 months of intense concentration the decision is taken. This decision is by an order of government and not by a decision taken in parliament.

The spirit of constitution has been kept up by recognizing the right of the states. The Marts can be opened only in city with population of over 1 million. The Cabinet has allowed it up to the discretion of the states to decide on their technology and infrastructure. While BJP and other parties may condemn it I would rather assert that the decisions taken today are for the benefit of India in future.

We have more reasonable questions to think upon: Why do people buy 5-10 cars (or more) even though they don’t have space for parking? When parent goes to the school for his/her child’s admission the principal asks for donation/favor. Isn’t the principal a common person like us and not necessarily the government?! I am neither standing for nor saving the government. These are the loopholes we need to fill.

This Policy may seem gambling to intelligent critics but I would call it Big Bang development. Fear is obvious and change inevitable, nevertheless, we have to move forward.