Prime Minister Manmohan Singh sought to silence his critics on Friday —a day after raising diesel and cooking gas prices — with a power-packed punch: Ushering in foreign direct investment (FDI) in the multi-brand retail, aviation, broadcasting and power sectors.
The government also announced a packed calendar for selling minority stakes in four public sector companies, Hindustan Copper, Oil India, MMTC and Nalco, to raise up to Rs. 15,000 crore.
The new policy framework for FDI up to 51% in multi-brand retail, first reported by HT on August 19, will empower the state governments to define their own set of rules for foreign retail giants’ entry.
“This policy change will allow us to connect directly with the consumer and save them money. By being ‘stores of the community’, we will also help them live better,” said Raj Jain, president, Walmart India, and CEO and managing director, Bharti Walmart Pvt Ltd.
But while urban retail customers may look forward to shopping with multinational giants, following the triggering of retail revolution, the ruling alliance may have to shop for extra support as the decision threatens its stability in power.
Ignoring his rebellious allies and protesting rivals, Singh has chosen to go for a redux of 1991 — when he led India into the global arena — to regain the advantage that seemed to have been lost after the Western media, think tanks and credit-rating agencies lambasted him for policy paralysis.
His immediate political challenge came from the second largest UPA constituent, Mamata Banerjee-led Trinamool Congress that set a 72-hour deadline to roll back both the diesel price hike and FDI liberalisation measures.
But Singh asserted that he would rather go down fighting for changes in the economy hit by inflation and the slowdown.
The retail FDI policy stipulated that at least half the investments be made in back-end infrastructure, such as cold-chain and warehousing and stores could be set up only in cities with a population of at least one million.
In states that do not have cities with population of more than 1 million according to the 2011 census, retail outlets may be set up in the cities of their choice, preferably the largest city.
The government also eased the FDI norms for single-brand retail, including the condition that global firms will have to source 30% of their merchandise from local small firms and artisans.
Globally, single-brand retail follow a business model of 100% ownership and retail giants, such as Swedish furniture major IKEA, had cited the 30% mandatory sourcing clause from Indian small firms as restrictive condition.
The other reformist decisions include allowing foreign airlines to invest up to 49% in domestic carriers - a move that will likely help Vijay Mallya-led Kignfisher Airlines to raise funds by selling equity to a foreign investor. It also raised FDI limit in broadcasting infrastructure such as DTH services to 74%.