The winter session of Parliament is on. Even as Parliament is yet to decide on FDI in retail, we are convinced that the need of the hour is the implementation of policies hitherto announced. The purpose of this piece is two-fold. First, to understand the implementation matrix of proposed policy reforms and second, to quantify the possible benefit matrix arising out of the same. In particular, we believe that the quantification of the benefits will dispel doubts (if any) of India firmly moving ahead with the reform agenda.
First, some statistics on the pending legislative business. At the beginning of this winter session, there were some hundred Bills still pending in Parliament. Additionally, as per some knowledgeable sources, it is believed that the government has identified around 35 Bills for the session, which include some carry-overs from the previous session.
The table below summarises the status of the policy actions that the government has taken till date outside the ambit of Parliament and the Bills/actions that requires Parliamentary approval, requires consensus/Parliamentary Standing Committee approval. For the sake of convenience, we have categorised the policy decisions that have already been decided and require no Parliamentary approval in the first column. There is no problem in going ahead with implementing these policy decisions (other than possible Parliamentary reviews or debates). However, the next three columns in the table reflect the government?s dilemma in implementing some of the policies announced (for example, insurance and PFRDA amendment requires Parliamentary passage) and also the requirement of consensus in some (Goods & Services Tax, Micro Finance Bill, etc). It is with respect to these approvals/consensus that the government needs to get its act together with the active support of all concerned. We now move over to why the Government should move ahead quickly with such implementations.
First, the decision to allow an increase in FDI limit in insurance from 26% to 49% will attract at least R30,000 crore, as per independent estimates. It may be noted that India?s rank in the world insurance market has dropped four places from 11th in 2010 to 15th in 2011 due to a decline in life insurance business in FY12. As a result of this, India?s share in the world insurance market has declined. Other countries such as Brazil, Spain and Taiwan have taken over and are now ranked higher than India. Hence, the recent decision to increase the FDI limit is a progressive step.
Second, the decision to allow 49% foreign investment in pension funds is likely to bring in, as per independent estimates, R4.6 lakh crore of additional investment. India has one of the fastest growing populations in the world. The number of people aged 60 and above is expected to increase to 113 million by 2016, and will eventually touch almost 180 million by 2026.
Third, the decision to allow FDI in multi-brand retail is expected to attract a minimum R13,000 crore, as per conservative estimates. Interestingly, various estimates put the size of the current retail industry in India between $400-450 billion. The Indian market remains a lucrative one for global retailers as it ranks 5th in AT Kearney?s Global Retail Development Index (2012), which ranks the top 30 developing countries for retail expansion worldwide.
Fourth, the move to allow FDI in civil aviation and stake sale could (as estimated by some experts) also attract as much as R4,350 crore and R15,000 crore, respectively. Finally, the much-awaited introduction of GST is expected to increase potential GDP by at least R8 lakh crore (1% over the current level).
Interestingly, as per government estimates, the 12th Plan requires approximately R41 lakh crore to meet the infrastructural investments and as per the estimates given above, some 30% of this can be met if impending policy decisions are implemented.
One small add-on, before we end. If we assume that the policy decisions will uplift investor sentiment, there could also be an indirect impact. This includes the possibility of some of the projects getting started (put in abeyance by domestic investors in FY12 citing policy uncertainties). In fact, estimates suggest the cost of such stalled projects is close to 10% of the 12th Plan infrastructure requirement. If that were to happen, we would be in for a bonanza.
Dr A Didar Singh is Secretary General, FICCI. Views are personal
