Yesterday the UPA govt went ballistic with its reform agenda and in one day changed the way the retails and other businesses will operate in the future – Floodgates have literally been opened now!
FDI or Foreign Direct Investment, which was the bone of contention for the past 10 months between the govt and the corporate has finally been resolved. The news comes as a strong blow to the opposition parties but the corporate are smiling and so is the stock market. And, so should you.
FDI basically allows the wrinkling Indian industry a much needed hope of a Botox. When I say hope of a Botox means that it has been allowed not that there is readily available Botox but it is welcome. The sectors which have been opened up to FDI are-
- Multi-Brand FDI
- Power Trading
- Broadcasting (DTH & HITS)
Lets look at each of these Industries and how FDI will have an effect on them!
1) Aviation sector
The once booming and now forever failing industry is now allowed an investment of 49% from foreign carriers.
The conditions are that 2/3rds of board members and the chairman must be Indian citizens. Though the corporate wanted it to be 51%, it seems a fair number.
This was brought in not just to help the Kingfisher airlines,which is in troubled waters but the one who lend KFA the most, SBI. So that there can be a hope of revival. But clearly speaking most of the airlines all over the world are in the red. Probably what KFA needs is rethinking on its fundamental carrier strategy. Why not follow Indigo airlines? It is the only aviation firm that is profiting in this sector of turmoil.
Overall, the FDI in Aviation will bring give a nee lease of life to the Indian Aviation Industry!
2) Multi-Brand FDI
This one is probably the biggest of all – FDI in Multi-Brand retail means that doors to one of the largest Retail market in the world is opened to the likes of Walmart, Amazon and countless others. This one has potential to turn Indian Retail Industry on its head.
In Navi Mumbai, when D mart came in, the local kirana stores took a big hit, not just Kirana stores but also the “Mores” and “Foodland Fresh” in the area shut down. Now that Walmart is open to establish in a much bigger way, I guess even stores like D Mart will suffer huge setback. Affect on smaller Kirana stores is but obvious!
Because the Walmart thrives on voluminous sale at a much less than market price and it sells practically everything. The shopping bill at pantaloons will not get any lighter but the quality will go up if it faces stiff competition from foreign brands.
3) Power Trading
Basically opening up power exchange for FDI will lead to not only foreign money but also knowledge. The area of knowledge in this sector is pretty limited and since generation, transmission, trading was already allowed, FDI in power exchange was a logical step to follow.
Indian Govt. plans on revamp of Prasar Bharti (i.e. Doordarshan) for which it will change the salary structure and make 5 year plans. Basically this has been introduced to help digitization of the network. The sector has been opened up to 74% for DTH, HITS (Head-end in The Sky) it always was 74% because the interested companies were Cititgroup owned YOU broadband service provider.
This will really help the customer get cheaper and better quality DTH service. Expect the prices of the set top to go down as well!
FDI in Public Sector Units (PSU’s)
Apart from the 4 sectors, Govt. has also announced FDI in some of the PSU’s
- NALCO – 12.15%
- MMTC – 9.33%
- HCL – 9.59%
- Oil India – 10%
This move was introduced solely to fill the coffers. The next big move will be pooling the shares in companies that govt wants to sell its stake in and then use the funds to buy back performing govt assets. Decision on this will be taken sometime next month.
Let us know what is your opinion on opening up FDI in these sector’s and PSU’s?