FinMin advisers propose bold reforms for services sect

With services contributing around 57 per cent to the economic growth, Finance Ministry advisers have made a case for allowing FDI in the retail sector and selling government equity in PSUs, including telecom firms BSNL, MTNL and TCIL, to achieve high GDP expansion.

A working paper, authored by senior economic adviser with Finance Ministry H A C Prasad and additional economic adviser R Sathish, said foreign direct investment in retail should be allowed in a phased manner, starting with metros.

While FDI is allowed in single brand product retails with 51 per cent cap, elsewhere FDI is prohibited in this vast sector.

"There is a large unorganised sector with low tax compliance. Along with allowing FDI in retail in a phased way beginning with metros, the existing mom and pop shops (kirana shops) could be incentivised to modernise and compete effectively with the retail shops foreign or domestic," said the paper, titled 'Policy for India's Services Sector'.

When contacted, Prasad said since farmers benefit due to modern retail trade, there is a need for opening this sector as well which can provide greater market access for India’s exports.

While opening up of the multi-brand retail to FDI has been favoured by the Economic Survey beginning with the food sector in the past, economic think tank ICRIER had found that apprehensions that organised retail will result in massive unemployment and have an adverse impact on farmers is not supported by evidence.

However, no decision has been taken on the issue as it is quite politically sensitive. A Parliamentary Standing Committee report had not only opposed FDI in retail, but also the entry of big domestic players to protect the unorganised sector.

The working paper also made it clear that the views expressed in it are of authors and not of the Finance Ministry.

On disinvestment, the paper said there is a plenty of scope for disinvestment in the case of public sector units (PSUs) in the services sector under both the Central and State governments.

Prasad said, "Around 27 PSUs in the services sector can be considered for disinvestment. These include Telecommunications Consultants of India Ltd, MTNL and BSNL."

He also favoured disinvestment in RITES, Engineers Projects Ltd, PEC Ltd, ITPO, Water and Power Consultancy Services, MSTC Ltd, National Building Construction Corporation, State Trading Corporation of India Ltd, MMTC Ltd, Shipping Corporation of India Ltd, Balmer Lawrie & Co Ltd and National Film Development Corporation etc.