India ushered in the biggest economic reforms in two decades on Friday, allowing big foreign retailers like Walmart, foreign broadcasters and foreign airlines to invest in the country, among other reforms.
The central government, led by the Congress Party, is under heavy pressure to kick-start India's slowing economy, boost employment and improve the country's shambolic infrastructure. Bringing in big foreign brands, like Walmart which can now open stores in India in partnership with a local company, is expected to help.
“The objective of the policy was to attract investment, create local manufacturing and employment,†said Anand Sharma, the minister for commerce and industry, during a p ress conference in New Delhi Friday evening, explaining the changes.
Mr. Sharma noted that the implementation of the new policy has been left entirely to the “decision and discretion†of the state governments. The government has allowed single-brand foreign retailers, like Gap or Ikea, to open stores in India that they will own 100 percent. So-called “multi-brand†retailers, or stores like Walmart or Tesco, will be allowed to open stores in India and own 51 percent of these (Walmart already has a wholesale store in India.) The government also allowed foreign airlines to purchase 49 percent of an Indian airline, and investment in broadcasting companies.
The changes were greeted with enthusiasm by industry and analysts:
Chandrajit Banerjee, director general, Confederation of Indian Industry, a trade group: “Coming a day after the fuel price announcements, the decision of the Government to ease FDI norms in an array of sectors like Multi Brand Retail , Civil Aviation, Power Trading Exchanges and Broadcasting is a tremendous boost not only to the sectors in question, but is a huge mood lifter. The despondency that had set in owing to absence of policy announcements would certainly be addressed to some extent. Global and domestic perceptions would also change and CII is hopeful that the rating agencies would take due note of these announcements as well.
“The move to increase FDI caps in in these sectors will help mobilize capital into these sectors, which the country needs and would also improve the current account deficit situation, which was becoming alarming. Purely, from a policy point of view as well, yesterday's announcements followed by today's are an indication that reforms are back.â€
Rajan Bharti Mittal, managing director of Bharti Enterprises: “This is a landmark decision in India's economic reforms process. Development of organized retail in India will bring immense benefits to stakeholders across the value chain â€" from farmers to small manufacturers and above all to consumers.
Enhanced investment in the sector can further the cause of employment, particularly amongst youth. In addition, this decision will open the doors for much needed technology and investments to develop the entire retail ecosystem in the country. Bharti Walmart's Cash & Carry venture is already sourcing fresh produce directly from thousands of farmers as well as other merchandise from local manufacturers, thereby adding to the local economy's growth and delivering immense value benefit to its customers such as kirana stores and other institutions.â€
Kingfisher Airlines founder Vijay Mallya: “We are very pleased that the Government has decided to allow foreign Airlines to invest up to 49 percent in the equity of Indian scheduled Airlines. This will open up a wide range of opportunities for both Indian carriers and foreign carriers who wish to p articipate in the strong growth potential for Civil Aviation in our Country.Kingfisher will now be able to re-engage with prospective Airline investors in a more meaningful manner and move towards re-capitalization and ramp up of operations.
Tarun Das, former director general of the Confederation of Indian Industry: “The reform agenda is back on track.The fuel prices were raised to bring down the deficit. If the deficit is down then the Reserve Bank of India can bring down the interest rates. If the interest rates are down, people will borrow more money and invest more money. That will improve the growth. So the over all impact on the economy will be very positive. Once the domestic economy improves, it will increase the confidence of foreign investor. The FDI in retail and aviation will bring more money, better technology and improved managerial skills. The Prime Minister is for reforms and now he has his team in place. So we will see more reforms in coming months. With high interest rates the burden of borrowing money is too much for the co-borrower. So all these reforms will start a chain reaction. I am very happy that reform agenda is back. The past mistakes will be corrected.â€
