Business Today

Govt speeds into fifth gear with retail, aviation reforms

Within just 24 hours of announcing a hike in diesel prices, the government on Friday allowed 51 per cent FDI in multi-brand retail, 49 per cent investment by foreign airlines in aviation sector and lined up four PSUs for equity sale.

Sanjiv Shankaran        Last Updated: September 15, 2012  | 11:31 IST

Sanjiv Shankaran
Sanjiv Shankaran
On Friday afternoon, meetings of two committees of the Union Cabinet opened up different sectors of the economy to higher levels of foreign investment in the wake of weak economic growth over the last five quarters. The important decisions taken were to allow the entry of majority foreign-owned multi brand retail, approve direct investment by foreign carriers in India's passenger airline business and enhance the level of foreign investment in the broadcast sector.

The Cabinet decisions capped a 24-hour phase of quick fire economic decision making. In addition to pushing ahead on foreign investment proposals , a decision was taken to line up four companies for disinvestment.

The previous evening, the government announced an increase in the retail price of diesel by Rs 5, or about 12 per cent.

The Cabinet decisions were greeted positively by industry lobby groups such as Confederation of Indian Industry, which issued media statements supporting the move.

None of the decisions need legislative approval and are executive decisions. Most of them had been considered by the government earlier. The decision to allow up to 51 per cent investment in multi-brand retail was originally cleared by the Cabinet in November 2011, before it was withdrawn on account of the disagreements within the ruling United Progressive Alliance government. However, on this occasion, the Congress, which is the dominant partner of the alliance, has decided to push ahead with its reform agenda.

The decisions to create more space for foreign investment and increase administered price of diesel have come on the heels of a fractious monsoon session of Parliament, which was rendered unproductive once the Comptroller and Auditor General of India tabled a performance audit report that found fault with the implementation of policy in the coal sector.

These decisions have come at a time when the finance ministry has been trying to convince credit rating agencies that the government hasn't lost its grip on the economic situation.  Earlier in the year, Fitch and Standard & Poor's had lowered their rating outlook on India's foreign currency to negative from the earlier level of stable. The lowering of outlook was interpreted by officials in the finance ministry as the equivalent of a warning that the rating would be lowered to junk status if the government didn't get its act together.

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