After three years of priming all
guns, taking careful aim and shooting both feet off,
Prime Minister Manmohan Singh finally realised that
a crippled man desperately needs some mojo to
survive. So he showed the chutzpah which we all
thought had been buried in the last thousand days.
The first move was to increase diesel price by Rs.5
per litre. It was an 11 per cent hike over the
existing price — not enough to cover the losses on
diesel which were then at Rs.18 per litre, but
sufficient to have most political parties scream
blue murder, with Mamata Banerjee being the
shrillest of them all. The government has also
chosen to limit the number of subsidised liquefied
petroleum gas (LPG) cylinders to six per year per
family. Any more will need to be bought at market
prices, which reign at about 80 per cent higher than
the subsidised price. That, too, got its usual
‘anti-common man’ hullabaloo, but less so than
diesel.
Within 24 hours of the diesel and LPG announcement,
the Cabinet Committee on Economic Affairs (CCEA)
approved key foreign direct investment (FDI)
proposals. The most important was endorsing 51 per
cent FDI in multi-brand retail. If you remember, the
government tried to introduce this in 2011, but had
to retract because of opposition from its allies,
again led by the Luddite from West Bengal. This
time, there was a cleverly enabling federalist twist
— a clause which allows any individual state to opt
out if it so wishes. There were other caveats as
well: minimum investment of $100 million; stores
allowed only in larger (one million plus) cities;
and at least 30 per cent of the merchandise to
bought from small and medium enterprises.
With at least half a dozen states expressing
interest in FDI in retail, the process of finally
having a modern retail chain is sure to begin. Its
full benefits — often elaborated by global
consulting firms — will take a while before kicking
in. But its time has come.
The CCEA also allowed foreign airlines to own up to
49 per cent equity in India’s domestic air carriers,
thus allowing Jet Airways, Indigo, SpiceJet, GoAir
and perhaps even Kingfisher to now get extra risk
capital, and reduce their leverage ratios. In
addition, the CCEA increased FDI limits in FM
broadcasting from 49 per cent to 74; and introduced
FDI in power exchanges which, while forward
thinking, has a long way to go.
That was not all. At long last the CCEA announced
minority sale of shares of four public sector
entities — NALCO, Oil India, Hindustan Copper and
MMTC — which should raise about half of the
government’s disinvestment target for 2012-13.
Corporate India is overjoyed. Coming as these have
after three years of reform neglect and two years of
growth deterioration, there is a heady sense of “At
last! Reforms are back!” This came out even stronger
when Mamata pulled her Trinamool Congress (TMC) out
of the ruling coalition with 19 MPs in tow, and
neither Singh nor Sonia Gandhi batted an eyelid.
Mulayam Singh Yadav’s Samajwadi Party chose to back
the coalition from outside, as did Mayawati’s
Bahujan Samaj Party. I expect that there will be
more goodies to be shared with the new ‘outside
allies’, but an early election seems unlikely.
Nobody wants it. None is prepared for it. So, the
government should rule till the end of its time.
A more important issue is our expectations. Long
denied of even the most trivial of reforms, our
fourth estate has gone ballistic in support. The
endorsement is correct; but the ‘Singh is King’
extravagance is possibly uncalled for at the first
signs of reformist intent.
Consider some facts. First, for fiscal year 2012-13,
it is unlikely that GDP growth will be greater than
5.5 per cent. Second, while headline inflation is
trending down, it is unlikely to reduce in the next
three to six months to levels where the Reserve Bank
of India (RBI) will sharply cut repo and
reverse-repo rates. As we saw recently, despite two
consecutive days of reform announcements, the RBI
didn’t budge. Third, Finance Minister P. Chidambaram
will have to take tough measures to reduce the
fiscal deficit in his budget on February 2013. With
lower GDP growth and triple-digit crude oil prices,
it is almost certain that the deficit will be higher
in absolute as well as in relative terms. In his
previous avatar, Chidambaram had the tailwind of 9
per cent growth. This time, it is 350 basis points
less, and with a much higher deficit to boot.
The government has, at last, moved in the right
direction. Therefore, praise it sensibly. But don’t
get back to the bad habit where over-exuberant
corporate honchos outbid each other in predicting
double-digit rates of growth. As the title says:
commend, don’t exult.
Published: Business World, October
2012