Prime Minister Manmohan Singh justified his government’s recent reforms measures by invoking the 1991 crisis, stressing his credentials as the architect of economic reforms to assure people that he can pull off another turnaround if his prescriptions to revive faltering growth are followed.
In his rare address to the nation which signalled that more steps could be in the offing, Singh said just as the country rebounded in 1991 after forex reserves had shrunk to cover only three weeks of imports, recent measures and similar ones will put the economy back on rails. “We are at a point where we can reverse the slowdown in our growth. We need a revival in investor confidence, domestically and globally. The decisions we have taken are necessary for this purpose,” the PM said.
However, the advocacy for tough steps and reforms measures was accompanied by the insistence that the
UPA, which won office twice with a commitment to protect the interests of the common man, remained “the government of the aam aadmi”.
In fact, he suggested that the hike in diesel price was actually aimed at discouraging the rich from walking away with subsidy on a fuel which is supposedly meant for the poor. “Much of the diesel is used by big cars and SUVs owned by the rich and by factories and businesses. Should the government run large fiscal deficits to subsidize them?” Singh asked.
Subsidy on petroleum products was 1.4 lakh crore last year. If we had not acted, it would have been over 2 lakh crore this year
The world is not kind to those who do not tackle their own problems
FDI in retail will benefit our farmers… Wastage will go down, prices paid to farmers will go up, and prices paid by consumers will go down
Justifying the diesel price hike, Prime Minister Manmohan Singh on Friday said the rate was raised only by Rs 5 instead of Rs 17 that was needed to cut the losses. He pointed out that kerosene, which is used by the poor, was not touched.
In the televised address, he said the action on diesel and cooking gas was necessary to ward off an economic crisis since not doing anything would have seen petroleum subsidy going over Rs 2 lakh crore.
“Where would the money for this have come from? Money does not grow on trees,” the PM said as he detailed the string of dire consequences—from inflation to unemployment to loss of investors’ confidence—that would have followed inaction. Singh emphasized that subsidy on fuel exceeded the combined spend on health and education.
The address was part of the government’s effort to ride out the resistance to reforms and came on a day of reassuring developments, with the sensex giving a high-five to the moves with a 400-point jump and Mulayam Singh Yadav pledging his support to the government.
“We need to do more, and we will do more,” said an unfazed Manmohan , stressing more reforms were necessary to achieve inclusive growth and repair public finances. “The last time we faced this problem was in 1991. Nobody was willing to lend us even small amounts of money then. We came out of that crisis by taking strong resolute steps. You can see the positive results of those steps.
“We are not in that situation today, but we must act before people lose confidence in our economy,” he said.
On allowing FDI in multibrand retail, he said criticism of the decision was misplaced. “In 1991, when we opened India to foreign investment in manufacturing, many were worried. But today, Indian companies are competing effectively both at home and abroad, and they are investing around the world. More importantly, foreign companies are creating jobs for our youth. I am sure this will happen in retail trade as well,” he said.
Singh dipped into his accomplishment as finance minister who put the country on the reforms trajectory. “I know what happened in 1991 and I would be failing in my duty as Prime Minister of this country if I did not take strong preventive action,” he said.
The use of first person was significant, coming from a prime minister who has often been accused of not taking charge—clearly a pitch that the person who saved the country in 1991 will not let it down now.
Citing the Eurozone crisis, he said, “I am determined to see that India will not be pushed into that situation. But I can persuade you to understand why we had to act. I will do everything necessary to put our country back on the path of high and inclusive growth. But I need your support,” he said.
“Please don’t be misled by those who want to confuse you by spreading fear and false information. The same tactics were adopted in 1991. They did not succeed then. They will not succeed now. I have full faith in the wisdom of the people of India,” the Prime Minister added
At the end of a day that saw a ‘nationwide’ strike called by the BJP, Left and other some parties against reforms, the government notified all the reforms it had announced last week, bringing them into effect on Thursday in a show of steely determination.
Thus, ignoring all the detractors, the government ushered in FDI in multi-brand retail, civil aviation, broadcasting and changes in norms for singlebrand retail.
The swift FDI notifications are expected to pep up the market and improve foreign investors’ perception of India as an investment destination.
The notifications were timed to perfection — to deliver a snub to all those who opposed the reforms and called a nationwide strike, which, true to past pattern, was successful where opposition parties rule and flopped where the Congress is in power.
In West Bengal, where Mamata opposed the strike, it was total except in government offices.
The government said multi-brand retail trading would be allowed in all products. Even unbranded farm products could be sold through retail outlets.
The government also set a minimum investment limit of $100 million for foreign companies to enter India. Of this, at least 50 per cent will have to be invested by foreign companies in backend infrastructure.
These include processing, manufacturing, distribution, design development, quality control, packaging, logistics, storage, warehouse and farm-related infrastructure.
In the notifications, the government retained the 30 per cent minimum local procurement norms for foreign retailers. This sourcing should be done from domestic companies with an investment of less than $1 million.
Foreign retailers can set up outlets in cities with a population of at least one million as per the 2011 census. But they have been barred from selling multi-brand products online.
However, the government also retained its first right to procure farm produce. These norms have been set as “enabling” provisions, and states are free to take a call on whether or not to allow FDI in retail in their areas.
The government prohibited foreign retailers from the business of lotteries, gambling, betting, casinos, chit-funds, nidhi companies, trading through transferable rights, real estate, construction of farm houses and production of all tobacco products.
Foreign technology collaboration by retailers has been banned in franchises, trademarks, management contracts and brand names.
In 100 per cent FDI in single-brand retail, the onus of complying with all the norms would be on the Indian entity and not its principal company abroad.
In civil aviation, the government allowed foreign airlines to pick up to 49 per cent of the paid-up capital of Indian companies operating scheduled air transport services and non-scheduled transport services. But such investments can be brought in only through the approval route. This 49 per cent foreign investment would include FII investments already made in airlines.
Foreign investment in domestic air transport companies will have to comply with Sebi guidelines.
In the broadcasting sector, the government enhanced the foreign investment limit to 74 per cent in teleports and mobile television. Teleports include uplinking hubs, direct-to-home telecasts, network upgradation and digital television.