The Prime Minister has introduced the boldest reforms yet in his current
term - foreign super-market chains can now enter India and foreign
airlines can buy stake in Indian carriers. "The Cabinet took many
decisions on Friday to bolster economic growth and make India a more
attractive destination for foreign investment," tweeted Dr Manmohan
Singh's office last evening. "I believe that these steps will help
strengthen our growth process and generate employment in these difficult
Key ally Mamata Banerjee is reportedly furious and will
decide on Tuesday whether to exit the ruling coalition - a threat issued
by her party on Friday. "We cannot support price hike of diesel and
reduction in subsidized LPG
cylinders. On Friday, a decision has been taken allowing FDI in retail
sector. It is a big jolt," Ms Banerjee said on her Facebook page, adding
that she was prepared to take "hard steps" if the new policies are not
reversed. (Read: Mamata Banerjee sets 72-hour deadline to withdraw FDI, diesel hike)
government, though, made it clear that it will not be held hostage.
Commerce Minister Anand Sharma pointed out that states have the right to
reject the multi-brand reforms. "It is an enabling legislation," he
said, adding that, "while we respect Mamata Banerjee's prerogative to
implement or not implement...equally it is the prerogative of other
states to have it." Late last year, the cabinet had allowed 51% Foreign
Direct Investment or FDI in multi-brand retail, but suspended its plans
after Ms Banerjee threatened to opt out of the Congress-led coalition at
The new reforms, designed to revive a sluggish
economy, means global firms such as Wal-Mart can set up shop with a
local partner and sell directly to consumers for the first time. Like
the Left and the BJP, Ms Banerjee has argued that the entry of
international super-markets will put thousands of corner shops and
farmers out of business.
The Cabinet on Friday also relaxed norms to allow international airlines to invest in domestic carriers, allowed more FDI in broadcasting service
s and announced disinvestment in four key profit-making public sector units (PSUs)
dramatic announcements came a day after the government took the
politically tough decision to hike the price of diesel by Rs 5 per litre
and also capped the supply of subsidised liquefied petroleum gas (LPG)
cylinders to six per household. Faced with the threat of becoming the
first in the BRIC (Brazil-Russia-India-China-South Africa) group of
emerging economies to be downgraded to junk, the government now seems
clear that economic imperatives far outweigh political expediency.
signal has brought cheer to Industry and the markets, which surged on Friday in anticipation of reforms. The Sensex clocked the biggest one-day
gain in 10 months. The BSE benchmark index closed at 18,464.27, up 443
points or 2.46 per cent - a 14-month high.
Foreign airlines can now own upto 49% in a domestic carrier, providing a much-needed source of funding for debt-laden airlines. (Read)
Opening the sector to foreign airlines is likely to help passengers too
with more competitive fares and world-class management and technology.
Ailing Kingfisher Airlines, which was India's No. 2 local
carrier a year ago but has since grounded most of its fleet, has lobbied
hard for this move in hopes that it can attract a foreign airline
investor, although none has publicly expressed interest. More successful
players like IndiGo and Jet have expressed reservations in the past
that allowing global players in will lead to cartelisation and takeovers
of Indian carriers.
Budget carrier SpiceJet, the fourth-largest
of India's six main airlines, said on Thursday it was in initial talks
with several Gulf carriers and was waiting for the government to ease
rules before it takes a final call.
With global airlines buffeted
by the European debt crisis and high fuel costs, cash-rich and
fast-growing Gulf carriers such as Dubai's Emirates, Qatar Airways and
Abu Dhabi's Etihad are seen as the most likely buyers of stakes in
Indian carriers, analysts say.
(With inputs from Agencies)