With wide support for the United Progressive Alliance (UPA)’s presidential nominee Pranab Mukherjee almost sealing the fate of the presidential elections, finance ministry officials, together with those from other ministries and departments concerned, are looking at a three-stage plan to boost foreign exchange inflows and investment, stabilise the rupee and initiate politically tough reforms, including diesel decontrol in phases.
According to the plan, immediately after the presidential polls, the proposals for foreign direct investment (FDI) in two segments — multi-brand retail and civil aviation — would be pushed. Supporting policy measures, on the lines of those announced yesterday, would also be pursued to enhance foreign investment inflows.
A senior finance ministry official said the measures would help stabilise the rupee at Rs 52-54 against a dollar in about three months. He added subsequently, there would be enough room for the government to take steps for decontrolling diesel prices.
A senior official from the Prime Minister’s Office confirmed this. He, however, cautioned the developments in Europe could not be overlooked. The expectations of foreign inflows rising substantially in coming months, therefore, needed to be seen in this context, he added.
With Pranab Mukherjee leaving the finance ministry, it is expected Prime Minister Manmohan Singh would take the charge of bringing the country back to the 9% growth trajectory.
Speaking to Business Standard earlier this month, Planning Commission Deputy Chairman Montek Singh Ahluwalia had clearly indicated in the short term, the government planned to push reform measures that didn’t need legislative approval.
Permitting global retailers to open multi-brand stores in the country can be initiated through an executive order, provided the government can muster support among UPA constituents after the presidential elections. After opposition by West Bengal Chief Minister Mamata Banerjee, the government had put on hold a move that would have allowed foreign majors such as Wal-Mart and Carrefour to set up local joint ventures and open stores in states that permitted these.
The proposal to allow foreign airlines to acquire up to 49% stake in Indian carriers, which also saw opposition from Banerjee, also awaits the Cabinet’s approval. Banerjee had earlier agreed to the move.
Considering the new political equations emerging in the backdrop of the presidential elections, the government expects the way forward to implementing these FDI proposals way well be with the support of the Samajwadi Party.
On diesel decontrol, the finance ministry official said total decontrol at this juncture might not be possible. Therefore, to begin with, the government might look at partial decontrol of the fuel, before extending it in a phased manner.
Though petrol prices have been decontrolled, the government still regulates the prices of diesel and cooking fuels, paying huge sums to oil marketing companies to compensate them for selling these products at regulated prices that are below market prices. In 2011-12, the amount paid to oil marketing companies on this count stood at Rs 85,000 crore.
For completely decontrolling diesel prices now, the price of the fuel would have to be raised by Rs 10.20. Currently, the subsidy for each cylinder of cooking gas is Rs 396.
