RECENT FDI REFORMS IN INDIA: Impact on Indian Market

India opened its supermarket sector to foreign chains recently after months of dithering, pushing ahead with the boldest reforms yet in Prime Minister Manmohan Singh's government as it tries to revive the country's tottering economic growth. The government has decided to allow foreign airlines to buy stakes of up to 49 per cent in local carriers, in a much-awaited policy move that provides a potential lifeline to the country's debt-laden airlines by opening up a fresh source of funding. Also, one of the significant and visionary decisions taken recently by the Indian Cabinet Committee on Economic Affairs (CCEA) regarding foreign direct investment is to permit FDI up to 49% in the power exchanges or power trading in India.

These key reforms have following implications on the Indian market:

EXPECTED IMPACT OF FDI IN RETAIL -

Foreign Direct Investment or FDI in Indian retail sector up to 51 % is the most emotive topic and has been in discussion everywhere in the country. The Union Cabinet has approved 51% FDI in multi-brand retail and raised the cap on FDI in single-brand retail from 51% to 100%.

Also significant recommendations of the latest FDI liberalization policy of India, in multi-brand retail sector, are the following:

• The minimum level of FDI in multi-brand retail sector will be worth $ 100 million
• Supermarkets are allowed in only those cities of India whose population is at least one million
• At least 50% of the total investment will be made on the Back-end Infrastructure
• And, at least 30% of their goods and products will be procured from the local companies and industries.

For FDI in Retail:

- FDI in India Retail should be welcomed as this will bring a lot of money in India. 
- Foreign Investment will help the government to build new infrastructure and improve rural infrastructure. 
- Farmers will be the biggest beneficiaries from this move, as they will be able to improve their productivity and get high prices by selling their crops directly in the market to the large organized players.
- Government will also gain by FDI through transparent and accountable monitoring of goods and supply change management systems.
- Products will be available to the consumers at reduced price.
- This will provide lots of job opportunities to unemployed people in India.
- It will provide more options to the farmers with less wastage of agriculture product.
- FDI in retail will increase the competition for Indian players pushing them to improve their products and services. The final beneficiary of this competition will be the consumers. 

Against FDI in Retail:

- FDI in Indian Retail should not be welcomed as they sell only their products throughout sourcing at cheap rates from foreign companies which reduces the value of Indian commodities and labour.
- Companies like Wall Mart, Tesco etc. will only engage well educated and smart workforce in small proportion. Thus it will not solve the problem of unemployment.
- It will create competitive markets for the Indian companies as they will be struggling with the foreign companies to increase the demand of their products.
- The market of our local shopkeepers will suffer.
- Farmers will become poorer as these big companies will slowly turn into monopoly buyers ruling the rates. 

EXPECTED IMPACT OF FDI IN AVIATION-

Foreign investors in the aviation sector of India will find extensive and ever-growing domestic and international market, for tremendous profits. Air travel for both domestic and international aviation will be cheaper and more lavish. There will be greater income to the aviation sector of India by domestic and international tourism, and other related sectors of Indian economy. Better will be chances for employment in the aviation sector of India.

However, there are certain inherent uncertainties and disadvantages in the FDI in the aviation sector of India, to both foreign companies and investors and the Indian aviation companies and investors in the short- and long- terms. The business competition in the Indian aviation market will be more and intense, and will favor the big players. The presence of greater number of aviation companies will reduce the overall profitability. Cost of employment for highly qualified and talented aviation professionals will rise regularly. Indian aviation companies will need to become more efficient, circumspect, and professional.

EXPECTED IMPACT OF FDI IN POWER TRADING-

FDI in the power sector of India has been permitted up to 100% (except the Atomic energy), but, there was no concrete and clear provision for FDI in the power trading in India. It is hoped that this decision of the Government of India will boost perfect and easy power exchanges, augment the availability of power, improve energy distribution, and introduce most efficient and best practices in power trading.Power Trading involves purchasing and selling of electricity, with the help and guidance of the Power Exchanges. The power exchanges serve as a well-organized, unbiased, and open platform to the generators, suppliers, traders, shareholders, and consumers in the power sector of a country. At present, there are two main power exchanges functioning full-fledged in India, the Indian Energy Exchange (IEX) and the Power Exchange India (PXI). Collectively, these two major power exchanges handle just 2% of the total 800 billion units of power generated in the whole country. Hence, there was desperate need for FDI in the power trading in India, to make this power sector of the country better and most efficient.

This permission to FDI up to 49% in the power trading exchanges comes under the categories of 26% Direct FDI and 23% Institutional Investment by any Foreign Institutional Investor (FII). These investments will be made in proper and strict compliance with the rules and regulations of SEBI and the Central Electricity Regulatory Commission (CERC). The FII investment will be made under the Automatic Route, and the Direct Investment will be performed under the Governmental Route.

FDI has its advantages as well as disadvantages. FDI in right areas is required for the development of the country. FDI in retail especially in multi-brand retail needs to be well regulated and invited through proper safeguards while we should invite FDI in technology and infrastructure with open hands. 

(Pardeep Kumar)

CAPITAL ACCOUNT CONVERTIBILITY

Economic reforms in India have accelerated growth, enhanced stability and strengthened both external and financial sectors. Our trade as well as financial sector is already considerably integrated with the global economy. India's cautious approach towards opening of the capital account and viewing capital account liberalization as a process contingent upon certain preconditions has stood India in good stead. It is interesting to note the difference between Current Account convertibility and Capital Account convertibility

Current Account convertibility means the freedom to convert one currency into other internationally accepted currencies wherein the exporters and importers where allowed a free conversion of rupee. But still none was allowed to purchase any assets abroad. Capital Account Convertibility means that rupee can now be freely convertible into any foreign currencies for acquisition of assets like shares, properties and assets abroad. Further, the banks can accept deposits in any currency.

Capital Account Convertibility (CAC) is the freedom to convert local financial assets into foreign financial assets at market determined exchange rates. Referred to as ‘Capital Asset Liberation’ in foreign countries, it implies free exchangeability of currency at lower rates and an unrestricted mobility of capital. India presently has current account convertibility, which means that foreign exchange is easily available for import and export for goods and services. India also has partial capital account convertibility; such that an Indian individual or an institution can invest in foreign assets up to $25000. Foreigners can also invest along the same lines. At present, there are limits on investment by foreign financial investors and also caps on FDI ceiling in most sectors, for example, 74% in banking and communication, 49% in insurance, 0% in retail, etc.

Given the changes that have taken place over the last two decades, however, there is merit in moving towards fuller capital account convertibility within a transparent framework. There is, thus, a need to revisit the subject and come out with a roadmap towards fuller Capital Account Convertibility based on current realities. In consultation with the Government of India, the Reserve Bank of India has appointed a committee to set out the framework for fuller Capital Account Convertibility.

The First Tarapore Committee was set up by the RBI in 1997 to study the implications of executing CAC in India. It recommended that the before CAC is implemented, the fiscal deficit needs to be reduced to 3.5% of the GDP, inflation rates need to be controlled between 3-5%, the non-performing assets (NPAs) need to be brought down to 5%, Cash Reserve Ratio (CRR) needs to be reduced to 3%, and a monetary exchange rate band of plus minus 5% should be instituted. However, most of the pre-conditions weren’t entirely fulfilled. Thus, CAC was abandoned for the moment.

However due to renewed optimism in the year 2006 as some of the targets suggested by the First Tarapore Committee were achieved along with consolidation of banks, a strong export front, large forex reserves amounting to $300 billion and high growth rates instilled  some hope making way for setting up of a Second Tarapore Committee to look into the PM’s proposal to reevaluate the earlier stand.

Second Tarapore Committee Recommendations:

1. The ceiling for External Commercial Borrowings (ECB) should be raised for automatic approval.

2. NRI should be allowed to invest in capital markets.

3. NRI deposits should be given tax benefits.

4. Improvement of the banking regulations

5. FII should be prohibited from investing fresh money through Participatory notes.

6. Existing PN holders should be given an exit route to phase out completely the PN notes.

At present the rupee is fully convertible on the current account, but only partially convertible on the capital account.

CAC can be beneficial for a country as the inflow of foreign investment increases and the transactions are much easier and occur at a faster pace. CAC also initiates risk spreading through diversification of portfolios. Moreover, countries gain access to newer technologies which translate into further development and higher growth rates.

Even though CAC seems to have many advantages, in reality, it can actually destabilize the economy through massive capital flight from a country. Not only are there dangerous consequences associated with capital outflow, excessive capital inflow can cause currency appreciation and worsening of the Balance of Trade. Furthermore, there are overseas credit risks and fears of speculation. In addition, it is believed that CAC increases short term FIIs more than long term FDIs, thus leading to volatility in the system.

Hence, India still needs to work on its fundamentals of providing universal quality education and health services and empowerment of marginalized groups, etc. The growth strategy needs to be more inclusive. There is no point trying to add on to the clump at the top of the pyramid if the base is too weak. The pyramid will soon collapse! Thus, before opening up to financial volatility through the implementation of FCAC, India needs to strengthen its fundamentals and develop a strong base.

Concluding it can be said that India should either wait for a while or implement CAC in a phased, gradual and cautious manner as enshrined in the present policy.

(Pardeep Kumar)

धारा 370 और भारत पाकिस्तान विवाद

                  धारा 370 और भारत  पाकिस्तान  विवाद 

ब्रिटिश शासन के समय जम्मू-कश्मीर एक देशी रियासत थी । भारत तथा पाकिस्तान जब 1947 मे स्वतन्त्र राट्र के रुप मे अस्तित्व मे आये तो जम्मू कश्मीर एक रियासत के रुप मे रहना चाहता था, लेकिन जब 26 अक्टूबर 1947 को आजाद कश्मीर की सेनाओ ने पाक की  सहायता से कश्मीर पर आक्रमण कर दिया तो वहा के राजा हरिसिँह ने भारत से मदद माँगी भारत सरकार ने मदद देते हुये एक सन्धि की जिसके अनुसार उसे भारतीय भू भाग का अंग मान लिया गया उन शर्तो के अनुसार संविधान मे धारा 370 के अन्तर्गत यह व्यवस्था की गयी और जम्मू कश्मीर को धारा 238 के तहत केंद्र राज्य संबंधों की सभी शर्तों से अलग कर दिया गया था तो इस धारा की पहली पक्ति में लिखा था कि यह एक अस्थायी प्रावधान है और इसके तहत भारत की संसद सीमित मामलों में ही कश्मीर में भारत में संवैधानिक नियम और प्रावधान लागू करवा सकेगी । उस समय राष्ट्रपति ने जम्मू कश्मीर के महाराज हरि सिंह द्वारा पांच मार्च 1948 को भारत में विलय के किए गए समझौते को ध्यान में रखते हुए और कश्मीर की विशेष परिस्थिति को देखते हुए प्रावधान किया था कि रक्षा, विदेश नीति वित्त और संचार के अलावा दूसरे और अन्य कानूनों का तब तक पालन नहीं करवा सकेगी जब तक राज्य की विधानसभा उसे मंजूरी नहीं दे दे। इस तरह के विशेषाधिकार हिमाचल प्रदेश, अरुणाचल प्रदेश और नागालैंड को भी दिए गए थे लेकिन कश्मीर का मामला इसलिए अलग है । 1974 में तत्कालीन प्रधानमंत्री श्रीमती इंदिरा गांधी और कश्मीर के सबसे ताकतवर नेता शेख अब्दुल्ला के बीच हुई बातचीत में इस धारा को जारी रखने के बारे में आम सहमति हुई थी।

 संबिधान मे धारा 370 कि व्यवस्थाकि गयी जिनमे निम्न प्रावधान किये गये।

 1. जम्मू कश्मीर के नागरिक अन्य राज्य मे रहते हुये वहा की नागरिकता ग्रहण कर सकते है जबकि अन्य राज्य के नागरिक वहा कि नही।
2. जम्मू-कश्मीर के नागरिक अन्य राज्य के सरकारी सेवाओ मे जा सकते है जबकि अन्य राज्य के नागरिक जम्मू कश्मीर राज्य की सरकारी सेवाओ मे नही जा सकते।
3. जम्मू-कश्मीर राज्य का न्यूनतम योग्यता रखने वाला नागरिक भारत मे किसी भी निर्वाचन क्षेत्र से लोकसभाका चुनाव लड़ सकता है जबकि दूसरे राज्य का नागरिक जम्मू कश्मीर से चुनाव नही लड़ सकता।
4. जम्मू कश्मीर का अपना भी एक कानून है जिसके संशोधन का अधिकार राज्य विधान सभा को ही है।
5. जम्मू कश्मीर राज्य की सीमाओ तथा उसके नाम मे परिर्वन राज्य विधान परिषद कि संस्तुति के बिना संसद नही कर सकती।
6.भारतीय संविधान के भाग-4 मे जिन नीति निदेशक तत्वो कि व्यवस्था कि गयी है वह जम्मू कश्मीर राज्य के लिये लागू नही होते।
7. केन्द्र सरकार धारा 360 के अनुसार राज्य मे आपातकाल नही लगा सकती।
8. अनुच्छेद 352 के अन्तर्गत आपातकाल की घोसणा संसद राज्य सरकार की सहमति से ही कर सकती है।
9. संघ को जम्मू कश्मीर के संविधान को निलम्बित करने का अधिकार नही है।
10. संविधान द्वारा अवशिष्ट शक्तियाँ जम्मू कश्मीर की सरकार और वहा के विधान मंडल को दी गयी है।
11. राज्य से अनुच्छेद 370 को संघ तभी समाप्त कर सकती हैँ, जब राज्य विधान सभा अपने दो तिहाई बहुमत से इसके पक्षमे प्रस्ताव पारित कर देगी।

विवाद 

भारत की स्वतन्त्रता के समय हिन्दू राजा हरि सिंह यहाँ के शासक थे । शेख अब्दुल्ला  के नेतृत्व में मुस्लिम कॉन्फ़्रेंस (बाद में नेश्नल कॉन्फ्रेंस) उस समय कश्मीर की मुख्य राजनैतिक पार्टी थी । कश्मीरी पंडित, शेख़ अब्दुल्ला और राज्य के ज़्यादातर मुसल्मान कश्मीर का भारत में ही विलय चाहते थे। पर पाकिस्तान को ये बर्दाश्त ही नहीं था कि कोई मुस्लिम-बहुमत प्रान्त भारत में रहे (इससे उसके दो-राष्ट्र सिद्धान्त को ठेस लगती थी) । सो 1947-48 में पाकिस्तान ने कबाइली और अपनी छद्म सेना से कश्मीर में आक्रमण करवाया और क़ाफ़ी हिस्सा हथिया लिया । उस समय प्रधानमन्त्री जवाहर लाल नेहरु  ने मोहमद अली जिन्ना  से विवाद जनमत-संग्रह से सुलझाने की पेशक़श की, जिसे जिन्ना ने उस समय ठुकरा दिया क्योंकि उनको अपनी सैनिक कार्रवाई पर पूरा भरोसा था । महाराजा ने शेख़ अब्दुल्ला की सहमति से भारत में कुछ शर्तों के तहत विलय कर दिया । जब भारतीय सेना ने राज्य का काफ़ी हिस्सा बचा लिया और ये विवाद संयुक्त राष्ट्र में ले जाया गया तो संयुक्तराष्ट्र महासभा दो संकल्प पारित किये : 

1. पाकिस्तान शीघ्र ही अपनी सेना क़ाबिज़ क्षेत्र से खाली करे । 
2. शान्ति होने के बाद दोनो देश कश्मीर के भविष्य का निर्धारण वहाँ की जनता की चाहत के हिसाब से करेंगे (बाद में कहा गया जनमत संग्रह से)

भारतीय पक्ष 

§  जम्मू और कश्मीर की लोकतान्त्रिक और निर्वाचित संविधान-सभा ने 1957 में एकमत से महाराजा के विलय के काग़ज़ात को हामी दे दी और राज्य का ऐसा संविधान स्वीकार किया जिसमें कश्मीर के भारत में स्थायी विलय को मान्यता दी गयी थी ।

§  कई चुनावों में कश्मीरी जनता ने वोट डालकर भारत का साथ दिया है । भारतीय फ़ौज की नये सिपाहियों के भर्ती अभियान में हज़ारों कश्मीरी नवयुवक आते हैं ।

§  भारत पाकिस्तान के दो-राष्ट्र सिद्धान्त को नहीं मानता । भारत स्वयं धर्मनिर्पेक्ष है ।

§  कश्मीर का भारत में विलय ब्रिटिश "भारतीय स्वातन्त्र्य अधिनियम" के तहत क़ानूनी तौर पर सही था ।

§  पाकिस्तान अपनी भूमि पर अतंकवादी शिविर चला रहा है (ख़ास तौर पर 1989 से) और कश्मीरी युवकों को भारत के ख़िलाफ़ भड़का रहा है । ज़्यादातर आतंकवादी स्वयं पाकिस्तानी नागरिक (या तालिबानी अफ़ग़ान) ही हैं । ये और कुछ कश्मीरी मिलकर इस्लाम के नाम पर भारत के ख़िलाफ़ जिहाद छेड़ रखे हैं। लगभग सभी कश्मीरी पंडितों को आतंकवादियों ने वादी के बाहर निकाल दिया है, और वो शरणार्थी शिविरों में रह रहे हैं ।

§  राज्य को संविधान के अनुच्छेद 370 के तहत स्वायत्ता प्राप्त है । कोई ग़ैर-कश्मीरी यहाँ ज़मीन नहीं ख़रीद सकता ।

पाकिस्तानी पक्ष

दो-राष्ट्र सिद्धांत के तहत कश्मीर मुस्लिम बहुल होने के नाते पाकिस्तान में जाना चाहिये था । विकल्प होने पर हर कश्मीरी पाकिस्तान ही चुनेगा, क्योकि वह भारत से नफरत करता है।

§ भारत ने संयुक्त राज्य की नाफ़रमानी की है और डरता है कि अगर जनमत-संग्रह हुआ तो कश्मीरी जनता पाकिस्तान को ही चुनेगी ।

§  कानूनी तौर पर कश्मीर के महाराजा द्वारा भारत में विलय ग़लत था क्योंकि महाराजा ने ये विलय परेशानी की स्थिति में किया था ।

§      पाकिस्तान की मुख्य नदियाँ कश्मीर से आती हैं, जिनको भारत कभी भी रोक सकता है ।