|Saturday, 03 August 2013 00:00|
Government finally clears the way for retail FDI. But many low-hanging fruit are still untouched
Now that the industry ministry has finally come up with some sensible rules for foreign investment in the retail sector, and the government appears to have the numbers to secure Parliament's approval for a higher FDI cap of 49 per cent in insurance, policymaking appears to have a greater sense of purpose than it did a year ago. In this period, roughly coinciding with the return of P. Chidambaram to the finance ministry, the government has come up with a Cabinet Committee on Investment, which has managed to clear stalled projects worth Rs 1.6 lakh crore of the total of Rs 7.5 lakh crore that have been stuck. It is true that in some cases these clearances have amounted to little as other restrictions remain. Similarly, the decision to bring diesel prices to market levels — a fifth immediately, and the rest gradually — was a big one, though the rupee's collapse has delayed the process as the subsidy keeps rising with the rupee's fall. Hiking prices of natural gas has helped make the sector more attractive. Several other such decisions have been taken over the past year, but it is still questionable whether they will result in an inflow of the foreign capital required to shore up the rupee.
In the case of telecom, for instance, allowing 100 per cent FDI means firms like Vodafone can buy out their token Indian partners. More importantly, with the government beginning to look a little more accommodating — after a wasted year where the base prices of auctions were kept too high and industry was seriously arm-twisted to participate — and the telecom regulator coming out with new policies, investments could begin looking up in the sector. But the government also needs to revisit its dial-a-penalty policy — all told, the industry has penalties worth Rs 63,000 crore levied on it.
The question, however, is whether this burst of action has come too late and if wary investors would prefer to wait till elections are over. In this context, it is curious that the government has still left the low-hanging fruit untouched. The best example of this is the $1.6 billion takeover of Strides Arcolab's injectables business by the US-based Mylan, which the industry ministry continues to oppose on the frivolous grounds that India's pharmaceuticals production would be hit if foreigners bought existing firms. While there is no evidence for this, the fact is the injectables business caters almost exclusively to the exports market even today. Several fully-funded, ready-to-execute projects of the DMICDC, to build new townships and exhibition centres, remain hostage to the government's inability to get the line ministries to cooperate. For most investments on hold, it is important to underscore, the opposition lies within.