FM gives reforms pill for ailing economy with privatisation, policy tweaks

Continuing with back-to-back announcements, Union Finance Minister Nirmala Sitharaman on Saturday rolled out a series of measures as part of the Rs 20-trillion stimulus package to help businesses cope with the lockdown stress, though many of these were important long-term reform steps put together as a Covid deal.

In the latest announcement, the government’s focus was on structural reform in sectors such as coal, minerals, aviation, defence, aerospace, power, and social infrastructure. This included an increase in the foreign direct investment limit in defence production to 74 per cent from 49 per cent, disallowing imports of certain military equipment and weapons systems, and privatising power distribution in Union Territories

Sitharaman also said the Centre would end its monopoly in coal mining by auctioning 50 blocks, encourage Rs 50,000 crore worth of investment in coal infrastructure, increase viability gap funding in social infrastructure, and allow greater private sector participation in the space industry.

“Important sectors such as coal, minerals, defence, aviation, space and atomic energy have been covered in the announcements by the FM today (Saturday). The measures and reforms announced will create many business opportunities and contribute to economic transformation,” Modi tweeted after Sitharaman’s media briefing.

However, apart from the measures mentioned above, many of the finance minister’s announcements are either made earlier or long-pending reforms. 

Analysts also concurred these were mostly medium- to long-term measures and would not take care of the immediate demand crunch due to the pandemic and the nationwide lockdown, which is in its seventh week.

“The government seems to be relying on this crisis to fast-track industrial reforms, which might otherwise face resistance. The enhanced role of the private sector in coal, minerals, defence, energy, aviation, and space sectors is an element of medium-term efficiency-improving reforms. The proposal to restrict imports of specified defence items, aimed at promoting self-reliance, was long overdue. Once again, it is the supply side which has received emphasis while demand initiatives are still awaited,” said D K Srivastava, chief policy advisor, EY India.

Madan Sabnavis, chief economist at CARE Ratings, said: The measures are “medium-term in focus and are not related to relief from the pandemic. Hence they are more a continuation of the economic reforms being announced at different points of time and do not address the issues of specific sectors impacted by Covid, which may come in the next round”. 

Sabnavis and Srivastava said the size of Saturday’s package was Rs 62,000-63,000 crore. Sitharaman said the Centre would introduce commercial mining in the coal sector.

“There was a government monopoly in coal mining all this while. That will be ended,” she said.

The minister said nearly 50 coal blocks would be offered to the private sector, the Centre would move to a revenue-sharing mechanism, and there would be investments of Rs 50,000 crore in infrastructure development in the coal sector.

However, the proposal to offer coal blocks to private players, and the auction of coal bed methane extraction rights, which she also spoke of, had been cleared by the Union Cabinet in January.

For the minerals sector, the minister said 500 blocks would be offered through auctions. This will require an amendment to the Minerals and Metals (Development and Regulation) Act.

The Centre will introduce a “seamless composite exploration-cum-mining-cum-production regime”, and the distinction between captive and non-captive mines would go, she said.

To boost self-reliance in defence, Sitharaman said the Centre would notify a list of weapons/platforms for which imports would be banned, there would be a separate budget provisioning for domestic capital procurement, the General Staff Qualitative Requirements of weapons/platforms would be simplified, and the Ordnance Factory Board would be corporatised.

However, the last proposal was announced by the defence ministry in November last year.

The biggest step in this sector was increasing the FDI limit in defence production to 74 per cent from 49 per cent under the automatic route.

“The conditions of security and other clearances will continue to be applicable,” she said.

For the aviation sector, the minister said: “Only 60 per cent of the Indian airspace is freely available. Restrictions on utilisation of the Indian airspace will be eased so that civilian flying becomes more efficient.”

Sitharaman said six more airports would be put out for bidding for operation and maintenance under the public-private partnership (PPP) model.

She spoke about making India a hub of aviation maintenance, repair, and overhaul. This initiative, however, had been announced by her in the 2019-20 Budget. The proposals on aerospace management and privatising six airports under phase 3 are also in the public domain, and the Ministry of Civil Aviation has announced them.

“Today’s announcement does breathe some life into the pandemic-hit civil aviation sector, but no mention of bailouts on an immediate basis may attract a mixed response from the industry. Though easing curbs on airspace would certainly bring in long-term efficiency and, on an immediate basis, some relief to airlines, a more meaningful intervention may be required if the aviation sector is not on the recovery path soon,” said Ajay Sawhney, partner, Cyril Amarchand Mangaldas.

Sitharman said the Centre would move to privatise power distribution in Union Territories.

The minister said the Centre would enhance the extent of viability gap funding up to 30 per cent of the project cost for social infrastructure projects like hospitals and schools. The outlay for this increase will be Rs 8,100 crore, which seemed to be the only direct expenditure item announced on Saturday.

Sitharaman said the private sector would be allowed a “level playing field” in the space sector, and private space companies would be allowed to use the Indian Space Research Organisation’s facilities and assets.

Sitharaman also said in atomic energy, the Centre would establish a research reactor in PPP mode for producing medical isotopes and take steps to link India’s robust start-up ecosystem to the nuclear sector.