NEW DELHI: Foreign Direct Investment (FDI) to India could witness a spurt with the government making it easy for overseas companies to invest in the country. On Wednesday, the government allowed 100 per cent FDI in single-brand retail and construction development and up to 49 per cent in power exchange. Now, foreign single-brand players can set up shop in India without waiting for government approval. Earlier, only up to 49 per cent of such investment from abroad was allowed under the automatic route as higher investments required government approval.
Wednesday’s big move, coming ahead of Prime Minister Narendra Modi’s visit to Switzerland to attend the World Economic Forum at Davos on January 22, could lift the slowing economy amid fiscal constraints and boost India’s business-friendly image globally.
At least 30 multinational firms, including Apple and Ikea, are waiting in the wings for easing of norms, especially with regard to local sourcing. Relaxation of rules could facilitate their entry into India.
The government also diluted the mandatory requirement of purchasing 30 per cent of goods locally. Foreign companies now have five years to comply with the local sourcing requirement.
“After completion of this five-year period, the single-brand retailer will be required to meet the 30 per cent sourcing norms directly towards its India’s operation, on an annual basis,” a government release explained.
These amendments are in line with the government’s broader strategy to liberalise and simplify FDI policy to facilitate ease of doing business and turn India into a global investment hotspot.
Experts are unanimous in saying FDI in single-brand retail could go up. According to Rabindra Jhunjhunwala, partner, Khaitan & Co, FDI will now gain momentum as the process is not subject to regulatory scrutiny and approval process.
“Global brands across different categories, from apparel to electronics to accessories, will be aided through this, providing further options to Indian consumers and improving India’s ranking in ease of doing business,” said Rajat Wahi, partner, Deloitte India.
Aashish Kasad, India region tax leader, consumer products and retail, EY India, said, “This should also generate employment and give Indian consumers access to several international brands.”
While the government relaxed foreign direct investment (FDI) norms for single-brand retail on Wednesday, it left the rules for multi-brand retail unchanged. Aashish Kasad, India region tax leader, consumer products and retail, EY India, said, “There was also an expectation of the government liberalising the FDI norms for multi-brand retail to enable large international retail chains to invest in India and bring latest technologies and retail formats into the country.”
The decision to ease norms for single-brand retail was strongly opposed by the Confederation of All India Traders (CAIT), which termed it a “brutal move” by the government that violates the poll promise of the ruling Bharatiya Janata Party. “This will hamper the local retail, cause large scale unemployment,” it said adding that relaxing norms for mandatory local sourcing from micro and small and medium businesses will go against the spirit of Make in India.
The government also allowed 100 per cent FDI in construction development under the automatic route. Construction sector is currently reeling under slowdown and the move could help the sector. It further allowed 100 per cent FDI in real estate brokerage services, clarifying that it does not amount to real estate business.
Another major change in rules is that foreign institutional investors have been allowed to invest up to 49 per cent in power exchanges through primary market, which until now was possible only through the secondary market.