Big reforms agenda ahead

VISION 2006 PART II

Retail may be opened up for FDI; Disinvestment will gather steam.

After a lacklustre 2005, the Manmohan Singh government has readied a moderate to heavy reforms agenda for 2006, with a part of it expected to be unveiled during the first quarter itself.

For instance, a group of ministers formed for dealing with foreign investment norms is expected to meet shortly to look at simplifying procedures and consider allowing international retail chains to set up shop in India.

Then comes privatisation of the Mumbai and Delhi airports. The much-delayed project is almost certain to take off in January. Simplified foreign investment rules are expected by the end of February.

Besides, disinvestment in public sector companies, which has been a casualty of the Left's influence on the government's economic policy ever since the United Progressive Alliance came to power in May 2004, is expected to gather steam in the first half of 2006.

The finance ministry is already putting together a list of around a dozen companies for the Centre to sell 5-10 per cent stake in them through public offers.

Opposition from the Left parties had forced the UPA government to abandon its plans to sell a 10 per cent stake in Bharat Heavy Electricals during the current year, but that has not come in the way of the new plans.

However, not all moves will have a smooth sailing. If the busy schedules of the ministers have delayed a decision on simplifying investment norms and allowing greater participation by foreign players in sectors like electricity trading and mining, the decision to allow 26 per cent foreign investment in pension fund management has been held up due to opposition from the Left parties. The fate of pension sector reforms is unknown.

Undeterred, the government is expected to take significant initiatives to develop the country's infrastructure. It is expected to put in place the ground rules for the roll-out of third-generation (3G) telecom services in the country.

After Mumbai and Delhi, the government is expected to take up projects to privatise and modernise the Chennai and Kolkata airports during the first quarter of the next year.

Bidding for highway projects on a build-operate-transfer basis is set to kick off, with some projects already up for grabs. A model concession agreement for ports is being finalised to help attract more private investment.

A regulatory framework for the transport sector is also in the works. It is, however, unclear whether this will cover the railways as well or be confined to roads, ports and aviation.

The government is also moving ahead with its plans to have a dedicated rail freight corridor at an estimated cost of Rs 25,000 crore. A detailed project report is expected to be in place by April-May.

The other sector under focus is energy, for which the power ministry wants to set up four or five "ultra-mega" generation projects.

The prime minister's proposal to form a standing committee of state power ministers is also expected to be implemented during the year. The committee will be modelled on the lines of the empowered committee on value-added tax.

Officials caution against expecting too much on labour reforms. At best, they say, a Bill for protecting workers in the unorganised sector can be expected in 2006.

On tax reforms, the finance ministry is expected to announce a road map for gradual pruning of exemptions, including those available to individual investors, for various savings schemes.

A Bill for rewriting the Income Tax Act is also in the pipeline. More services are expected to be brought in the ambit of service tax. The government will also honour its commitment to reducing Customs duty to Asean levels of 5-10 per cent.

The government's reforms plan kicked off this year with the prime minister's announcement that Press Note 18 will be done away with.

It was seen as a hurdle in the way of foreign investment. The Centre also kept its promise to raise the foreign investment cap in telecom from 49 per cent to 74 per cent, and allowed 100 per cent foreign investment in construction.

While the UPA government could not convince the Left on the need to raise the foreign investment ceiling for insurance, from 26 per cent to 49 per cent, it did manage to introduce a Bill to amend the Banking Regulation Act to allow foreign investors to vote in step with their shareholdings in private banks. Earlier, the voting right was capped at 10 per cent.

But mergers and acquisitions of private banks were restricted to a handful of weaker ones identified by the Reserve Bank of India. The year also saw public sector banks getting more autonomy.

The Centre also tried to address the issue of long-term finance for infrastructure projects through a special purpose vehicle, which could raise low-cost funds on the strength of a government guarantee. Bankers, though they do not see funds as a constraint, said a lack of bankable projects was the main problem.

Then the value-added tax regime was ushered in at the state level from April this year after many delays. Though there were initial hiccups because states did not adopt a uniform rate structure, tax collection saw improvement, rising 16 per cent in states that implemented the VAT.

Learning their lessons, non-VAT states are now expected to accept the new tax regime in the new year.

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Look out for...

Retail may be opened up for FDI

Disinvestment will gather steam

3G rules will be laid down

Upgrade of Kolkata and Chennai airports will be taken up

Standing committee of state power ministers will be set up