Following back-to - back announcements, Union Finance Minister Nirmala Sitharaman rolled out a series of measures as part of the Rs 20-thousand stimulus package to help businesses cope with lock-down stress on Saturday, although many of these were important long-term reform steps put together as a Covid deal.
The latest announcement focused on structural reform in sectors such as coal, minerals, aviation, defense, aerospace, power and social infrastructure. This included increasing the foreign direct investment limit for defense production to 74% from 49%, disallowing imports of certain military equipment and weapons systems, and privatizing the distribution of power in Union Territories.
Sitharaman also said that the Center would put an end to its monopoly on coal mining by auctioning 50 blocks, encourage Rs 50,000 crore worth of investment in coal infrastructure, increase the funding gap for the viability of social infrastructure and increase the participation of the private sector 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 announcements made by the Finance Minister are either earlier or long-standing reforms.
Analysts also agreed that these were mostly medium-to long-term measures and that they would not be taking care of the immediate demand crunch due to the pandemic and the nation-wide lockdown in their 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 that almost 50 coal blocks would be offered to the private sector, the Center would move to a revenue-sharing mechanism, and Rs 50,000 crore would be invested in infrastructure development in the coal sector.
However, the proposal to grant coal blocks to private players and the auctioning of coal bed methane extraction rights, which she also referred to, was cleared by the Union Cabinet in January.
For the minerals sector, the Minister said that 500 blocks would be offered through auctions. This will require the amendment of 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.
In order to boost self-reliance in defense, Sitharaman stated that the Center would notify a list of weapons / platforms for which imports would be prohibited, separate budget allocations would be made for domestic capital procurement, the General Staff Qualitative Arms / Platform Requirements would be simplified, and the Ordnance Factory Board would be corporateised.
However, the latest proposal was announced by the Ministry of Defense in November last year.
The biggest step in this sector was to increase the FDI limit for defense 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 talked about making India a hub for aviation maintenance , repair and overhaul. However, this initiative was announced in the budget for 2019-20. The proposals on aerospace management and privatization of six Phase 3 airports are also in the public domain and have been announced by the Ministry of Civil Aviation.
“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 Center would increase the extent of the viability gap by financing up to 30% of the project costs for social infrastructure projects such as hospitals and schools. The cost of this increase will be Rs 8,100 crore, which appeared to be the only direct expenditure item announced.
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.
