FDI, fuel price hike: Govt in no mood to yield demands of allies, opposition

Government does not appear to be in any mood to yield the demands of allies and opposition to roll back the policies on FDI in multi-brand retail and the diesel price hike with Prime Minister Manmohan Singh saying it was an important step in the right direction.

After unleashing big bang reforms measures in the last two days, he said it will take "courage and some risks" to break the policy logjam and strongly favoured higher FDI an FII flows.

Justifying the diesel price, Singh said rational energy pricing was critical and "our energy prices are out of line with world prices".

In his opening remarks at the full Planning Commission meeting for approving the 12th Plan document, the prime minister spoke of three economic scenarios of "strong inclusive growth", "insufficient action" and "policy logjam" and said the country needed close to one trillion dollar investment in infrastructure sector during the period.

Outlining the three scenarios introduced in the Plan document, he said Scenario I called "strong inclusive growth" presents what is possible if the policy actions mentioned in the Plan are substantially implemented.

"I believe that we can make Scenario I possible. It will take courage and some risks but it should be our endeavour to ensure that it materialises. The country deserves no less," he said. 

In big ticket reforms, the Cabinet Committee on Political Affairs on Thursday decided to hike diesel prices and put a cap on supply of subsidised LPG cylinders while yesterday the cabinet and CCEA cleared FDI in multi-brand retailing and aviation and disinvestment in four PSUs.

Referring to high fiscal deficit and the need to bring it down, the prime minister said the 12th Plan projects a current account deficit of 2.9% of GDP.

"This must be financed mainly through Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII) flows so that reliance on external debt is limited. I believe we can attract the financing we need provided out fiscal deficit is seen to be coming under control and the growth momentum is regained", he said.

Singh said, energy is a difficult area where policy needs a comprehensive review. "Rational energy pricing is therefore critical. Our energy prices are out of line with the world prices. The recent increase in diesel price is an important step in the right direction."