Jolted out of policy inaction, the Manmohan Singh-led United Progressive Alliance (UPA) government on Friday opened the FDI floodgates - across sectors ranging from aviation to retail, and media to power - in a single stroke. In another step signalling a reform push, could fetch the exchequer around Rs 15,000 crore, disinvestment in four PSUs - Nalco, MMTC, Hindustan Copper (HCL) and Oil India - was also okayed by the Union Cabinet.
Domestic airlines, in screaming need of funds, have been allowed up to 49 per cent foreign direct investment (FDI) from global airlines. FDI in India's multi-brand retail, where global chains like Walmart, Carrefour and Tesco have been waiting for several years to enter, will be capped at 51 per cent; but, it will be up to states to take a final call.
The policy on single-brand retail, too, has been diluted to clear the way for the likes of the euro 25-billion Swedish furniture company IKEA to set up shop and invest freely in India. The norm mandating 30 per cent sourcing from the country's micro, small and medium enterprises (MSMEs), cleared by the Cabinet last year, has been tweaked. Now, it would be 30 per cent mandatory sourcing from India, preferably from MSMEs. IKEA had told the government in its India proposal that it would be impossible to follow the 30 per cent MSME sourcing norm.
The government's FDI spree didn't end there -broadcasting services such as direct to home (DTH) and cable could attract up to 74 per cent foreign investment, up from 49 per cent. Power exchanges have been allowed to receive up to 26 per cent FDI and 23 per cent foreign institutional investment.
India Inc, critical till now of the UPA government's 'policy paralysis', showered praises on it for its bold step after Commerce Minister Anand Sharma made the announcement in a televised press conference.
Political resistance, from both allies and Opposition parties, had kept the aviation and retail FDI policies in a limbo for long. The government, as well as the PM, had been drawing flak at home and, more recently, from the global media, for the state of slumber. Today, as if on a steroid, the government cleared all that had been seemingly "undoable" till now, in spite of the frowning allies and the Opposition. The move comes a day after the government showed its guts by raising the diesel price by Rs 5 a litre and capping subsidised LPG for a consumer at six in a year.
"If these measures result in economic growth of the country and better image for the ruling government, UPA can face the 2014 elections much bolder," said a bureaucrat who did not want to be named. More than anything, the FDI announcements would translate into better middle-class opinion and foreign investors' perception of the government, he said.
Trinamool Congress chief Mamata Banerjee, a key UPA constituent, has opposed the FDI move, while BJP, the main Opposition party, argues the government has allowed FDI under foreign pressure.