The economic policy measures announced recently, opening up airlines and multi-brand retail to foreign direct investment (FDI) and raising the price of diesel at the pump by Rs 5, are not the biggest reform measures imaginable in terms of their effect on the overall economy. But are they likely to at least turn around the struggling sectors they target?
India’s airlines are struggling, as Table 1 shows, under a debt burden and consistent losses. The three largest-listed private airlines (IndiGo is privately held) have struggled to reduce their debt burden over the past years. SpiceJet and Jet have succeeded to an extent, but Kingfisher has largely failed. It does not look like an attractive target for a takeover. The FDI announcement moved its share price upwards, but only marginally, as Table 2 shows. Jet was relatively unmoved, though SpiceJet saw a distinct uptick, indicating that investors think it might benefit.
In organised retail, profit margins have largely declined for the large-listed players, except for the big Pantaloons chain. But Pantaloons has also seen its debt expand in recent years from 44 to 56 per cent of assets, as Table 3 shows. While it and Shoppers Stop saw their share prices increase after the announcement, it was a small increase when compared with the share’s price variability over the past year, as Table 4 shows. (Click here for tables)
And then there’s the diesel hike and LPG cylinder limit. Oil marketing companies are deep in debt, as Table 5 shows. As Tables 6 and 7 show, under-recoveries on LPG and diesel have exploded. And so has the overall fuel subsidy bill, in Table 8. If it is to be limited in 2012-13 to the Budget Estimates also in Table 8, given that oil prices are not steadily declining (Table 9), an increase of merely Rs 5 will not be enough.
