FDI and Other Measures – Why Response has been confused?

There has been 3 Major decisions taken in a knee jerk reaction by the UPA-2 Government. Immediate reaction by MSM was hyperbolic with one very popular anchor claiming the PM was hitting six after six in the fiftieth over.

The three decisions are:

1. Rs. 5 rise in Diesel Prices.

2. Subsidy on Cylinders capped at 6.

3. FDI in Multi Brand Retail and Aviation.

Rise in Diesel prices were expected immediately after Budget but has come nearly six months later. As the UPA had hardly raised the price of Diesel in the immediate past it had to raise by Rs. 5 at one go. It did not help that inflation figures reported at the same time was in double digits again raising alarms of galloping price rises. Also an unprecedented Rs. 5 hike has given hopes for roll back given the past behaviour of this Government. With TMC threatening pull out Cinema abhi bhi baaki hai !

The second decision is the capping of subsidised cylinders at 6. While the Congress Spokesman is crying himself hoarse saying that there will not be any roll back, other news items say that State Governments of Congress will increase it to 9. TMC is talking of 24.

1. Is this not Roll Back?

2. Why is Congress at Center saying it would be 6 and at same time advise States to increase it to 9 and set a competition in appeasement on?

3. If is is a State Subject why is Center interfering and if it is a Central issue why is Congress asking States to defy that?

The third and major issue is the FDI in Multi Brand Retail and Aviation. The Government has been sitting on these proposals for too long to now claim any credit for it. And more importantly these are not reforms by any stretch of imagination. They are decisions by the lower rungs of Government. While it would require at least a couple of posts to point to flaws in the Press Release by the Government in this context it would be sufficient to say that the Government only released a Press Note. This is not even a set of Rule under some Act that would be tabled at the next session of parliament. So it is a leap ( a giant leap, if i am allowed to be honest) to say that BJP did not allow this release of a press note.

As pointed out by many including this Press Note of Government, 100% FDI in Cold Storage is already permitted but has not happened. KPMG points out that until 2010 all action in the Infrastructure / Logistics space has happened only in Mergers and Acquisition (M&A) and no Green Field project has come up under the FDI route. The Multi Brand Retail and Aviation reforms (hurts to call it reform) awaits a similar fate. King Fisher and Big Bazaar will benefit.

A good friend summed it up in one sentence – The Press note on Multi Brand Retail says the 11th Plan required Rs. 7,500 Cr investment in infrastructure for Agriculture especially Cold Storage. Loans to King Fisher Airlines in Rs. 7,500 Crores by banks. Could have been put to better use.

You have a tattered policy you cant expect criticism to be any better.

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