Reforms get a major push, Cabinet opens up multi-brand retail for FDI

In a burst of major decisions that hope to kickstart the stagnating economy, the UPA government Friday allowed 51 per cent foreign direct investment in multi-brand retail, opened up the aviation sector to 49 per cent investment by foreign airlines and cleared stake sales in four public sector firms to raise Rs 15,000 crore, among others.

The decisions, many of them politically sensitive, came a day after the government bit the bullet on fuel prices and raised the price of diesel and capped the subsidy on cooking gas to cut its fiscal deficit by Rs 20,300 crore.

The much-awaited reform measures follow consistently disappointing news on the economic front with GDP growth in the first quarter slowing to 5.5 per cent. Besides, dire predictions have been made that this rate could further fall to 5 per cent if the government's policy paralysis persisted.

Friday's decisions by the Cabinet and the Cabinet Committee on Economic Affairs also included allowing 49 per cent FDI in power exchanges — a move to attract more capital to the sector where exchange volumes account for only 3 per cent of the electricity sold.

The government also eased conditions for single-brand retailers to operate in India by doing away with the clause that makes it compulsory for such retailers to source 30 per cent from small and medium enterprises.

The announcement to open up the bulk of India's $535 billion retail sector that employs about 30 million people to foreign investors such as Wal-Mart and Tesco was cheered by industry bodies as "restarting the reforms process".

"The series of policy decisions announced by the government today signal that India is on the move. They send out a clear message to the global investor community that the government is committed to taking forward the next generation economic reforms. More importantly, they will boost sentiment within the domestic industry and provide much needed momentum to the economy," said Sunil Bharti Mittal, Group CEO of Bharti Enterprises.

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