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LATEST NEWS UPDATES | FDI push & price pill by Jayanta Roy Chowdhury

FDI push & price pill by Jayanta Roy Chowdhury

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published Published on Feb 21, 2011   modified Modified on Feb 21, 2011
President Pratibha Patil today reaffirmed the government’s resolve “to maintain the momentum for reforms on a wide front”, prompting policymakers to outline the possible economic agenda ahead of the budget just a week away.

Top officials offered their take on the phrase, mentioned in Patil’s speech to Parliament at the start of the budget session. According to the them, Prime Minister Manmohan Singh and finance minister Pranab Mukherjee are looking to reduce the tax liability for the lower middle class by giving more exemptions, bring a constitutional amendment to usher in a goods and services tax and reform foreign direct investment (FDI) rules.

The President’s speech, too, appeared to suggest that FDI was high on the agenda. “We have to strive to make the domestic environment more conducive to investment… particularly foreign direct investment.”

The government wants to allow limited FDI in multi-brand food retail as part of its attempts to contain runaway prices. It has also been working to raise the 26 per cent cap on foreign investment in defence so more US, European and Russian aircraft and weapon makers can tie up with Indian firms.

Currently, FDI is not allowed in multi-brand retail because of objections from politicians who argue that the move will drive the thousands of neighbourhood grocers — often referred to as “mom and stores” — out of business and increase unemployment.

But the high inflation appears to have altered the course of the debate. Food prices are high despite good crops, forcing the government to ask states to scrap mandi acts which force farmers to sell their produce to licensed traders.

It is also looking at ways to spur investment in cold chains and retail to reduce wastage, without hitting the small stores.

But political analysts reckoned that the reforms likely to be pushed by the Congress-led UPA would be those that do not become a political liability for the ruling combine in elections in several states, including Bengal, this year.

The FDI reforms could cover insurance. If the moves come to fruition, the likes of Lloyd’s of London could set up shop in India. “Tens of billions of dollars of investment could flow into the country,” said a top finance ministry official.

The President expressed deep concern “over the adverse impact of inflation on the aam aadmi and on growth.

Growth has been 8.5 per cent this year and is forecast to touch 9 per cent in the next. But a tight money policy, aimed at checking inflation, has triggered fears it could slow down the rate of economic expansion.

Patil listed the measures initiated to fight inflation. These included moves to bring a Right to Food Act, which ensure highly subsidised grain, and plans to step up duty-free free imports of sugar.

Support prices offered to wheat and paddy farmers were increased in recent months so they sell more grain to government agencies such as the FCI, Patil said. Duty-free imports of pulses and edible oil, the other food items whose prices also soared, are also likely to continue.

The Telegraph, 22 February, 2011, http://www.telegraphindia.com/1110222/jsp/nation/story_13617605.jsp


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