New Delhi: With most economic agencies, including World Bank, S&P and Moody’s continuing to project over 7 per cent GDP growth for the next three years (2018-20), the Union Cabinet on January 10 approved 100 per cent Foreign Direct Investment (FDI) in single-brand retail and construction through the automatic route. The move was made keeping in mind an ease of doing better business.
In a statement issued, the government said the move was to liberalize and simplify the FDI policy to provide ease of doing business in the country. The decision, it claims, will lead to larger FDI inflows contributing to growth of investment, income, and employment. In the construction sector, the government has allowed 100 per cent FDI under the automatic route.
The existing policy on Single Brand Retail Trading (SBRT) allows 49 per cent FDI under automatic route, and FDI beyond 49 per cent and up to 100 per cent through government approval route. It has now been decided to permit 100 per cent FDI under automatic route for SBRT.
The government notification also clarified that real estate broking services did not amount to real estate business and was, therefore, eligible for 100 per cent FDI under the automatic route. In case of power exchanges, the extant policy provides for 49 per cent FDI under automatic route for exchanges registered under the Central Electricity Regulatory Commission (Power Market) Regulations, 2010. However, FII/FPI purchases were restricted to secondary market only. This has now been changed and this provision has been done away with, thereby allowing FIIs/FPIs to invest in power exchanges through the primary market as well.
This move from the Narendra Modi-led government has received contrasting reviews:
CAIT objects govt’s move to allow 100 per cent FDI in single-brand retail
The Confederation of All India Traders (CAIT) objected to the government’s move to allow 100 per cent FDI in single-brand retail, saying the decision would lead to an easy entry for multi-national companies and harm domestic trade. “It’s a serious matter for small businesses. It is a pity that instead of formulating policies for the welfare, upgradation and modernization of existing retail trade, the government is more interested in paving way for the MNCs to control and dominate the retail trade of India,” National Secretary General of CAIT Praveen Khandelwal said.
CPI(M) opposes move to allow foreign players to invest in Air India
The CPI(M) accused the government of moving towards handing over Air India to foreign hands by allowing airlines from outside the country to own up to 49 per cent stake in the national carrier.
“The politburo of the CPI(M) also strongly opposes the decision to allow foreign airlines to invest up to 49 per cent in Air India,” PTI quoted the party as saying in a statement.”Having taken the decision to privatize Air India, the Modi government is now moving towards handing over Air India to a foreign airline.”
Criticizing the Cabinet’s decision to allow 100 per cent FDI via automatic route in single-brand retail trade, the Left party said that though “FDI up to 49 per cent was permitted under the automatic route (till now), this decision to liberalize FDI in retail trade will have harmful consequences for domestic retail traders and shopkeepers”. This measure indicates that the Modi government is moving towards allowing FDI in multi-brand retail trade, it claimed.
Congress accuses BJP of double-speak
The Congress Party accused the BJP of adopting “double-speak” on allowing 100 per cent FDI in single brand retail and criticized it for relaxing the 30 per cent outsourcing clause. Senior Congress leader Anand Sharma said that 100 per cent FDI in single brand retail was notified during the previous UPA government and the only change made is to allow it through the automatic route. “The prime minister talks of ‘Make in India’, but now says local sourcing is not required,” Sharma was quoted as saying by PTI. He also asked the government to clarify its policy on multi-brand retail.
Congress spokesperson Randeep Surjewala alleged that by doing away with the requirement of 30 per cent sourcing through ‘Make in India’, the prime minister has exposed his duplicity and doublespeak on the issue.
FDI not worth much without tech transfer, says BJP’s Subramanian Swamy
Senior BJP leader Subramanian Swamy said that FDI is not worth much unless there is technology transfer. PTI quoted Swamy as saying that foreign investment contributes only two per cent to India’s investments and unless accompanied by technological transformation, it is not of much use for the economy.
Industry hails new foreign capital norms in retail
Meanwhile, the industry experts, as well as the largest trade body of retailers Retailers Association of India (RAI), have hailed the new foreign investment norms for single-brand retail. “We believe the decision to allow 100 per cent FDI through automatic route will ease the process for foreign as well domestic brands,” Kumar Rajagopalan of RAI was quoted as saying in a statement.
Aashish Kasad of EY India described the decision as a progressive step that will help attract foreign investment into the sector. He, however, said industry is disappointed with no changes in FDI norms for multi-brand retail which is needed to get latest technologies and retail formats.
PTI quoted Neeti Sharma of TeamLease as saying that the move will result in demand for emerging roles in technical development and support for online retailers, supply chain and logistics, and customer service. “To meet the increased job demand from companies, it is imperative that we focus on up-skilling the workforce and re-shape the learning and development initiatives,” she said. The decision is also expected to boost the real estate supply for this sector in the near future. “After a prolonged period of slowdown in the retail sector over the past few years, we saw a strong comeback with developers and investors betting high on the sector,” she added.
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