Millennium Post

New economic reforms

The Union Cabinet on Wednesday introduced some new measures of economic reforms that are expected to spur foreign direct investment (FDI) and create more jobs and opportunities. In particular, it allowed foreign airlines to invest up to 49 per cent in the national carrier Air India and a 100-per cent FDI in single-brand retail. It also allowed 100 per cent FDI in real estate brokering services. Even as the government was making this announcement, a World Bank report suggested that the Indian economy is expected to grow by 7.3 to 7.5 per cent in 2018-19, while the Chinese economy, which has registered a growth rate of 6.8 per cent compared to India's 6.7 per cent in 2017-18, is expected to grow by 6.4 per cent in 2018-19. The bright outlook for the Indian economy is attributed to a likely rise in private investment, growth in infrastructure spending and businesses benefitting from adjustments and settling down of the recently-introduced Goods and Services Tax (GST). The economic growth rate forecast by the World Bank for 2018-19 makes India the world's fastest-growing economy. This is a big morale booster for the government at the Centre and those responsible for framing economic and financial policies of the country. But before bursting into a euphoria over the distinction of being the fastest growing economy of the world, let's not forget former RBI Governor Raghuram Rajan's advice that before any chest-thumping about the good health of the Indian economy, we should maintain this rate of growth for the next 15 to 20 years for a palpable change in the standards of living of common Indians. At the moment, India is only on the right track and it should remain on track at least for the medium term. However, the World Bank report comprehensively addresses the Opposition's concerns and criticism of the Centre and the Finance Minister for what they call derailing and ruining the economy by the inept handling of plans and policies. To a large extent, it endorses the government's economic policies and the reforms that it has managed to bring in despite a lack of majority in the Rajya Sabha, which makes the task all the more difficult for the government.
It is in this context that the economic reforms introduced on Wednesday by the government are an important and decisive step that breaks the status quo and provides some necessary impetus to the economy. Allowing a 100 per cent FDI in single-brand retail and relaxing of the existing norm that makes it mandatory for these entities to source at least 30 per cent of their products from India itself will definitely attract the Opposition's ire. The arguments of the Opposition against allowing 100 per cent FDI in single-brand retail, in all likelihood, will have the same old tale that it would affect small retail businesses and lead to loss of employment on a large scale. The success of this policy will lead to the bigger question of whether India is ready for similar infusion of FDI in the entire retail sector. If India allows 100 per cent FDI in the entire retail sector, there can be a massive inflow of FDI into the country but the small local businesses will suffer and lose business. That's a tricky situation and the government may not opt for it, at least in the short term. As regards the decision to allow foreign airlines to invest up to 49 per cent in the loss-making national carrier Air India, it makes sense to hand over the control of the airline to a more professional and profit-oriented board of management. Air India's net loss after tax dropped to Rs 3,643 crore in 2016-17. It has an accumulated loss of more than Rs 50,000 crore and debt of about Rs 55,000 crore. Air India being an entirely public sector enterprise, all the losses have to be met by the public exchequer. The Indian aviation sector is rapidly growing and it offers a great deal of scope for consolidation. Ever since the Union Cabinet in principle approved foreign investments in Air India some months back, the country's largest private airline Indigo, Tata Group-Singapore Airlines joint venture Vistara and Doha-headquartered Qatar Airways have officially expressed interest in buying a stake in Air India. As the government prepares to connect smaller towns and unserved areas with economical flights under its regional connectivity scheme UDAN, it certainly needs to shift its focus from Air India and its chronic loss-making to expand the horizon of the Indian aviation sector. India desperately needs to connect its vast geography with an economical and practical mode of transportation. It needs many more airports and economical airlines. That must be the government's new focus area, while Air India can have foreign equity and a professional management to tide over its crisis.
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