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Reforms continue unabated - Views on News from Equitymaster
 
 
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  • Dec 9, 2003

    Reforms continue unabated

    With the elections around the corner one would expect the reforms process to slowdown and give way to more populist measures. However, if the current developments are any indication, the government's reform agenda seems to be going ahead full steam. Whether it is the power, telecom, banking or the civil aviation sectors, the government has initiated reform measures that are likely to go a long way in attracting investments as well as foreign expertise in these sectors.

    For one, the government's measures to further liberalise the civil aviation sector has received further impetus from the Naresh Chandra Committee report on civil aviation. While the report contains far-reaching recommendations that would open up the sector to a larger quantum of FDI, it also envisages allowing domestic carriers to ply on international routes. The report goes a step further and recommends the sale of stake (49%) in the public sector carriers Indian Airlines and Air India. While it is too early to say whether these recommendations would be accepted by the government, especially considering the fact that these may not find favour with the employees of the two public sector carriers, the policy makers seem to be sending out the right signals, i.e. we may open up the sector for further foreign participation.

    One must also remember the fact that the government had previously decided to restructure two of the largest international airports in the country, namely Delhi and Mumbai. What was noticeable regarding this project was the fact that for the first time the government had allowed majority (74% stake) participation by a private consortium for the management and restructuring of the airports. This may just be the first step towards gradual opening up of the entire sector. The banking sector may not be far behind. The two major decisions regarding the hike in FDI limit (above the 49% mark) as well as voting rights (above the 10% mark) are being revived and a decision may be reached soon.

    This would further open up the sector to investment and foreign participation, essentially leading to consolidation that is good for any sector. Already there are signs that investors are interested in picking up stake in Indian private sector banks. As far as the power sector reforms are concerned, much has been written and talked about. The emphasis seems to be on accountability as far as state electricity boards are concerned. While these have been the good features of the reform measures, there have been some grey areas (the telecom sector fiasco is a case in point). But atleast we are moving in the right direction. While the government had indicated that it might raise the FDI limit in the telecom sector, the decision has been delayed for a while.

    The Indian economy had opened up to the global environment in the first wave of economic reforms that were carried out in the early 1990s. This new wave of reforms may be the second step in the whole process of opening up of the economy, or globalisation in short. While the reform measures have been slow, the fact that they are taking place in the desired direction is encouraging. However, we must also caution our readers regarding the fact that for any reform measures to succeed there has to be stability at the center. The coming general elections bring uncertainty, hence the euphoria must be guarded till there is further clarity. One must also understand that the more the Indian economy opens up to the global economy, the more it will be prone to the vagaries of the latter. In final analysis, while reforms per se are a healthy sign, their sustainability as well as the implications must be researched carefully before making any investment decision. Overall, a good sign!

     

     

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