Sunday, September 16, 2012

Reforms Season Two - Part III: FDI in Power, Broadcasting and selling some family silver

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"We have to bite the bullet. If we have to go down, let us go down fighting" - Manmohan Singh while declaring economic reforms in 2013.

John F Kennedy once said, "A man does what he must — in spite of personal consequences, in spite of obstacles and dangers, and pressures — and that is the basis of all human morality". At this point of economic crisis and stagnation, reforms are the essential bullet premier needs to bite, and which he did, even though it’s a little bit late.

III.   FDI in power trading exchanges

Power sector has some fundamental problems, which can only be solved by a decisive will power of government. FDI can do little help here. According to the new policy,

a. Combined (FDI & FII) can own up to 49% in power trading exchanges (FDI capped at 26% and FII at 23%).

Ironically, problem in power sector is NOT that we are,
a.       Unable to generate enough power.
b.      Not able to transport it.
c.       Unable to introduce new technologies.
d.      Unable to create "organized platform for fair, neutral, efficient and robust price discovery"
e.      Not able to come up with "extensive and quick price dissemination".
f.        Not able to create "price risk management for the generators, distributors, traders, consumers and other stakeholders"

The crux of the problem is we are not able to generate power and sell it to the end customer with a profit (or sell it with a small loss). Till we find a solution for this FDI will do little help.

IV.   Enhancing FDI in Indian Broadcasting sector from 49% to 74%

FDI limits increased in 'Teleports', 'Mobile TV', 'Headend-in-the Sky Broadcasting Service' etc to 74%. However, government didn't touch 'News and Current affairs' sector, where the 26% FDI limit will continue. I am not seeing any significant changes here unless government touching the news sector.

In other areas, soap operas and regionalized version of US programs will continue for a foreseeable future.

V.   Disinvestment of Central PSU's (through stoke exchanges)

GOI will sell, 9.33% of MMTC (current government holding is 99.33%); 10% of Oil India Limited (current government holding is 78.43%), 12.15% of National Aluminium Company Limited (current government holding is 87.15%), 9.59% of Hindustan Copper (current government holding is 99.59%).

Selling some shares in these companies will not create any broad changes in their policy. I wish, if government could use this money for some creative purpose.

VI. Amending the conditions for FDI in single brand retailing.

Amendment was expected after IKEA's plea. There are two changes,

"(i) The foreign investor should be the owner of the brand" changed to "Only one non-resident entity, whether owner of the brand or otherwise, shall be permitted to undertake single brand product retail trading in the country".

Secondly, (ii) involving FDI beyond 51%, 30% sourcing would mandatorily have to be done from SMEs/ village and cottage industries artisans and craftsmen, changed to (ii) In respect of proposals involving FDI beyond 51%, sourcing of 30%, of the value of goods purchased, will be done from India, preferably from MSMEs, village and cottage industries, artisans and craftsmen, in all sectors, where it is feasible.

First change is purely technical, but the second change allows the companies to source their materials from their home countries or from current suppliers. Unlike, in the case of sourcing in multi brand retail, here we don’t have to worry about dumping; as these are niche products and customers expect it in that way. After all, people would rather by a hand-made Ferrari sports car from Italian plant than anywhere else.


Some decisions are in good direction and will act as an emergency kit for industry. Others are incomplete, which requires one more policy revision. Hope that, this time government will not retrace their path. It will be good for India to see Manmohan Singh retire with grace and as a man of reforms. Hope that he will be able to do enough things to change the opinion of TIME, Washington Post and millions of Indians about his second term as premier.

One more thing I would like to add here is, FDI and FII are not medicines for all sort of deceases. Their opinions and experience can act as a guide at its best; it’s our duty to create a free market economy – not crony capitalism – under a framework of fair competition, stable policies and justice. We can’t outsource it...



1. Government of India

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