Covid-19 Economic Package: Government Announces Structural Reforms In Eight Sectors

The Indian government intends to undertake reforms across eight sectors as part of the Prime Minister’s Aatmanirbhar Bharat scheme—a post pandemic economy plan that’s aimed at helping the economy recover from the impact of Covid-19.

On Saturday, Finance Minister Nirmala Sitharaman detailed these reforms, some of which have been announced earlier or are already work-in-progress. Changes were announced across sectors including coal, minerals, defence production, civil aviation, power distribution, social infrastructure, space and atomic energy.

Today’s measures are focused on structural reforms for sectors which will be new horizons for growth, Sitharaman said. She added that the Prime Minister’s Aatmanirbhar Bharat plan is intended to make India self-reliant but not inward-focused.

Commercial Coal Mining

Commercial mining will be introduced in the sector on a revenue sharing basis instead of fixed rupee/tonne basis. Nearly 50 blocks will be offered immediately for commercial mining along with partially explored blocks. The government will also invest Rs 50,000 crore in coal-related infrastructure.

The move towards commercial mining is already underway. The parliament passed the Mineral laws (Amendment) Bill in March 2020, which laid the groundwork for the change.

The privatisation will assist in generating appetite among private Indian and international private sector investors, said Sambitosh Mohapatra, partner-power and utilities, PwC India. Larger states and utilities may undertake privatisation based on the results, he said.

Minerals

A composite exploration-mining-production regime will be introduced and 500 mining blocks will be offered through an open and transparent auction process under these rules.

The distinction between captive and non-captive mines will also be removed and stamp duty payable at the time of award of mining leases will be rationalised.

In addition, joint auctions of bauxite and coal mineral blocks will be introduced to enhance the aluminium industry’s competitiveness.

Defence Production

The foreign direct investment limit in defence manufacturing under the automatic route will be raised to 74 percent from 49 percent.

The government will notify a list of weapons/platforms which will be put under an import ban to encourage local production and procurement. Indigenisation of imported spares will also be promoted. There will be separate budget provisioning for domestic capital procurement that will help in reducing the defence import bill.

Besides this, the government will also corporatise Ordnance Factory Boards to make them accountable and list them on exchanges.

Civil Aviation

The government has announced the opening up of airspace availability and said that six more airports will be privatised. Only 60 percent of Indian airspace is freely available, said Finance Minister Niramala Sitharaman. Restriction on utilisation of Indian airspace will now be eased. This will save Rs 1,000 crore in flying cost, she said.

In addition, six more airports have been identified for privatisation in the second round via the public-private partnership route. The intention to do so was first announced last year. The government expects an investment of Rs 12,000 crore in the first and second round.

India will also be developed as a hub of maintenance, repair and overhaul operations both for both the private aviation and the defence aviation sector, Sitharaman said.

Power Distribution Companies

The government will take steps to privatise power distribution companies in union territories.

Inefficiencies of the distribution companies will not be allowed to hurt consumer, Sitharaman said, adding that power tariff reforms will be furthered. Measures such as power load shedding will be discouraged.

“Privatisation of DISCOMS in union territories is positive for companies like Tata Power, Torrent Power and CESC. Privatisation in Delhi has done well where Tata Power has reduced transmission losses from 60 percent to 12 percent,” said Rupesh Sankhe, research analyst at Elara Capital.

Social Infrastructure

The government will enhance viability gap funding for social sector projects to 30 percent of the total project cost as against 20 percent for other sectors. This will involve a total outlay of Rs 8,100 crore.

Space

Private participation in the space sector will be boosted by providing a level playing field in satellite, launches and space-based services. Private sector will be allowed to use ISRO facilities and future projects for planetary exploration will be opened for them.

A liberal geo-spatial data policy will also be introduced.

Atomic Energy

A research reactor will be established in public-private partnership mode for production of medical isotopes. Also, facilities will be set up under PPP mode to use irradiation technology for food preservation.

What’s The Impact?

The announcement on Saturday will have a medium term impact and will not provide relief to sectors hurt by Covid-19 disruptions, said Madan Sabnavis, chief economist at CARE Ratings.

“The economic package announced today covers eight sectors and has a medium term in focus and is not related to relief from the pandemic. Hence is more a continuation of the economic reforms being announced at different points of time and does not address issues of specific sectors impacted by the covid (like hotels, airlines etc) which may come in the next round,” Sabnavis said in a note.

A fifth and final tranche of announcements is scheduled for 11 am on Sunday.

(Corrects an earlier version that wrongly attributed Sambitosh Mohapatra’s quote to another analyst)