Reform 4.0 package promises a better tomorrow for the sectors in focus | Business Standard News

The measures announced should be viewed as beneficial, where they seek to bring in more private investment in mining, coal, airports, social infra and power by removing existing constraints

Madan Sabnavis, chief economist, CARE Ratings (Photo Credit: Kamlesh Pednekar)

Just like the series of lockdowns, going from 1.0 to 3.0, with a 4.0 not being ruled out, so have been the government’s stimulus packages that are now in the fourth stage. This time, the finance minister has taken on the issue of reforms in eight sectors and is hence quite divorced directly from the pandemic crisis. However, will contribute to a better tomorrow for these sectors. While there are no relief packages as such, there is facilitation of more investment.

The steps taken in coal and minerals are quite positive for the country, as permitting coal mining by auctioning 50 blocks is progressive and will plug a major gap in the ecosystem. This will bring down imports and encourage investment with the government contributing to Rs 50,000 crore for evacuation. Supply of coal will increase, while prices will be more market oriented. Hence, private investment will increase from the present captive producers. For mining, allowing a seamless package of exploration, mining and production of minerals will remove uncertainty in the minds of the concerned companies as they will no longer have to be dependent on the value chain where they do not operate. We can expect higher investment in the mining sector in the next couple of years.

Increasing the foreign direct investment (FDI) limit in defence to 74 per cent is a big reform, which should get in some interest going ahead. The import of some equipment is being banned where domestic competence exists. Hence, foreign participation will now have to be through FDI, which will also help shore up the balance of payments (BoP). This is a big positive for the defence sector that gets a boost for production with the possibility of higher FDI inflows.

The government continues to focus on privatisation of airports and six of them will be made open to public private partnership (PPP) – although under the present conditions of Covid-19 and uncertainty on the future of air travel, there could be some concerns to begin with. While there are expectations of an investment of Rs 13,000 crore to flow in with Airports Authority, the response would tend to be muted for the first couple of years. However, when it comes to creation of maintenance, repairs and overhaul (MRO) hubs, higher investment may be expected. Presently, there is a tendency to use nearby Asian markets for such a support.

The other significant announcement from the point of view of industry is the privatisation of discoms in Union Territories (UTs). This is clearly the first step being taken by the government to see how viable such measures are before it can also be tried out in States. The state of discoms is still quite weak and the government has tried its best to bring about reforms, which have not worked fully. By privatising them, it is hoped that the sector as a whole can be made more robust. It needs to be observed how these reforms work out as it will set the blueprint for the future.

There is an allocation of Rs 8,100 crore for funding of hospitals, which is progressive with a 30 per cent clause being brought in for viability gap funding – meaning thereby potentially there can be a total of Rs 27,000 crore of investment going into this sector. However, this will happen over a period of time.

Overall, the measures announced under the Reform 4.0 package should be viewed as beneficial over the medium-term, where they seek to bring in more private investment in mining, coal, airports, social infra and power by removing the constraints that exist today. These investments may not come in immediately, as most companies are still grappling with the moratorium with banks and would hence flow post normalcy being restored in the country. The policies will bring in a delta to growth in future, but should not be interpreted as being support for Covid-19 relief.

Madan Sabnavis is chief economist at CARE Ratings. Views are personal.

via Reform 4.0 package promises a better tomorrow for the sectors in focus | Business Standard News

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