India Inc. sees 'policy paralysis' changing to 'reforms push'
Thanks to two major executive decisions last week, India Inc. feels reforms may be back on track - a sudden shift from the charges of "governance deficit" and "policy paralysis" against the Manmohan Singh government for the past few years.
This feeling was further reinforced given the fact that one of the decisions -- that is, allowing foreign equity in multi-brand retail -- was taken despite stiff opposition not just from allies within the coalition but also some senior Congress party leaders.
The other major decision was to approve a far-reaching bill to amend the 55-year-old Companies Act, 1956, that will be tabled for parliament's nod, with some far-reaching proposals such as class action suits and making insider trading a criminal offense.
"The government had to intervene and be seen it is serious about reforms. Fortunately, in the past one month we have also seen this happen, starting first with the national manufacturing policy," said Arun Singh, senior economist, Dun & Bradstreet India.
"This will definitely change the sentiments of the global investor. Although we can't do anything as far as slowdown due to global economic turmoil is concerned, at least we can show interest in reforms so that we attract investments," Singh told IANS.
Why was the corporate sector so excited with the decision on retail trade?
For one, India actually opened up the commercial retailing sector in January 1997 when H.D. Deve Gowda was prime minister, allowing 100 percent foreign direct investment in the cash-and-carry format, or wholesale trade, under the government-approval route.
Then for as many as nine years there was no movement forward. It was only in February 2006, during the first tenure of the United Progressive Alliance (UPA), that foreign equity in cash-and-carry format came under the automatic route along with 51 percent foreign equity for single-brand format -- not for multi-brand stores.
With so many political pulls and pressures, a decision was not really expected.
"The decision on multi-brand retailing will be a game-changer. This is a major landmark in India's economic reforms process," said Rajan Bharti Mittal, chairman of Bharti Walmart, which is also eyeing entry into this format of sales.
The current movement forward has come nearly five-and-a-half years after that, when the general refrain that Prime Minister Manmohan Singh may not be able to push it through, given the kind of opposition within the Congress party, notably among some senior leaders.
According to sources, apart from Railway Minister and Trinamool Congress leader Dinesh Trivedi, those who voiced serious concern included Defence Minister A.K. Antony, Rural Development Minister Jairam Ramesh and Small and Medium Enterprises Minister Virbhadra Singh.
"The prime minister realised that he has been dithering for too long and even inviting criticism from the corporate czars for policy paralysis," said Amulya Ganguly, political analyst and commentator.
"The decision on retail is a bold step because it gives a signal that economic reforms are on track," Ganguly told IANS.
The mood was similar on a new Companies Act, also in the pipeline for nearly seven years. The new act was proposed in 2004 and the J.J. Irani committee report, which forms the backbone for the proposed new legislation, was presented May 31, 2005.
In fact, the necessity of a recast in the legislation was underscored after the $1.43 billion Satyam Computer scam and a host of charges both within and outside India on the unprecedented cases of insider trading and stock manipulation.
These acts are now a criminal offence.
The two decisions taken Thanksgiving Thursday on opening up of retail industry and the move forward to recast the Companies Act, which follow the National Manufacturing Policy announced a few weeks ago, have also left global investors happy.
A pat on the back came immediately from a lobby representing 400 of the top companies of America and India, the US-India Business Council. Its president, Ron Somer, said: "These bold reforms have heartened investors from the US and elsewhere."