• Cleared 51% Foreign Direct Investment (FDI) in multi-brand retail. This will allow foreign retail biggies including Walmart to sell directly to Indian customers. While the plan was cleared last year, but continued opposition by their own ally, Ms. Mamata Banerjee meant that this decision was deferred multiple times
• Allowed foreign airlines to have upto 49% state in Indian carriers. Till date, all foreign investors except airlines could buy stake in Indian airlines. This decision will now provide a new source of funding for the various debt burdened airlines in India
• Raises the FDI cap on various streams of broadcast services by up to 74%
• Cleared sale of stake in four PSUs (public sector units) viz. Oil India Ltd, Hindustan Copper, National Aluminium Company (Nalco) and Minerals and Metals trading Corporation (MMTC). That apart stake sale of Neyvelli Lignite Corporation (NLC) is also a foregone conclusion since only 5% of the shares of this company is with the public as against a required minimum level of public shareholding of 10% as prescribed by the stock market regulator SEBI (Securities Exchange Board of India)
These decisions are aimed at reversing the perception of policy paralysis and improve the investment environment in the country which has been severely jolted thus far, basis some undesirable decisions taken during the previous budget and a persistent belief that the government has no control. Decisions to open up some sectors to foreign investors could bring much capital as India is grappling to find a way to finance the bulging CAD. Decision to increase diesel prices gives the message of the government’s resolve to tackle the runaway fiscal deficit, even in the face of adversity (read political opposition). Also, the disinvestment process has finally been kick-started. The timing is apt as the Indian market is buoyed by multiple catalysts: belief that the European crisis may finally be under control, announcement of QE3 by the US Fed (which is expected to be risk asset positive) and a sudden change (read positive) in perception about the government’s reform orientation.
PS: Extreme political opposition might also force the government to fall and push India to mid-term election. The Indian Prime Minister might have already had a premonition as he said during the meeting, “time for big bang reforms has come. If we have to go down, we have to go down fighting.”