1. The Indian government has on 20 September 2012 opened more sectors for foreign direct investment ("FDI") especially multi-brand product retail trading and foreign investment in Indian airlines by foreign airlines. Besides this, the Indian government has also taken the following decisions to increase investment opportunities for foreign investor in India:
(a) Increase in FDI limits from existing 49% to 74% in teleports, direct to home, and cable networks activities falling under the broadcasting sector. However, FDI in excess of 49% in these activities is under the government approval route.
(b) Permitting FDI upto 74% in mobile television. However, FDI in excess of 49% in mobile television activities is under the government approval route.
(c) Permitting FDI up to 49% in Power Exchanges registered under the Central Electricity Regulatory Commission (Power Market) Regulations, 2010 under the automatic route.
2. FDI IN MULTI-BRAND PRODUCT RETAIL TRADING
FDI in multi-brand product retail trading has been allowed subject to the following conditions:
(a) FDI upto 51% has been permitted under the government approval route.
(b) Minimum amount to be brought in as FDI by the foreign investor is US$ 100 million.
(c) At least 50% of total FDI brought in shall be invested in 'back-end infrastructure' within 3 (three) years of the first tranche of FDI. 'Back-end infrastructure' will include capital expenditure on all activities excluding that on front-end units, e.g., investment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, ware-house, agriculture market produce infrastructure etc. Expenditure on land cost and rentals, if any, will not be counted for purposes of back-end infrastructure.
(d) At least 30% of the value of procurement of manufactured/processed products purchased shall be sourced from Indian 'small industries', i.e., industry which has a total investment in plant & machinery not exceeding US$ 1 million.
(e) Such multi-brand product retail outlets may be set up only in cities with a population of more than 1 million (as per Census of India 2011) and may also cover an area of 10 km around the municipal/urban agglomeration limits of such cities.
(f) Government will have the first right to procurement of agricultural products.
(g) Interestingly, retail trading in any form by means of e-commerce is not
permissible for companies with FDI engaged in multi-brand product retail trading activities.
(h) Most importantly, this policy is merely an enabling policy of the Indian government and the government of respective State/Union Territories has to take their own decisions with regard to allowing FDI in multi-brand product retail trading in their States/Union Territories. Therefore, retail sales outlets may be set up only in those States/Union Territories which have agreed, or agree in future, to implement this policy in their States/Union Territories. The ten Indian States/Union Territories which have allowed multi-brand product retail trading in their States are Andhra Pradesh, Assam, Delhi, Haryana, Jammu & Kashmir, Maharashtra, Manipur, Rajasthan, Uttarakhand, Daman & Diu (Union Territory) and Dadra and Nagar Haveli (Union Territory)
3. FDI IN CIVIL AVIATION SECTOR
FDI in Indian airlines by foreign airlines is allowed subject to the following conditions:
(a) Foreign airlines are allowed to acquire upto 49% in the equity of Indian companies operating in cargo airlines, helicopter and seaplane services under the government approval route.
(b) This 49% limit subsumes FDI and investment by foreign institutional investor.
(c) A scheduled operator's permit can be granted only to a company (i) that is registered and has its principal place of business within India; (ii) the Chairman and at least two-thirds of its directors are citizens of India; and (iii) the substantial ownership and effective control of such a company is vested in Indian nationals.
(d) All foreign nationals likely to be associated with Indian scheduled and non-scheduled air transport services, as a result of FDI shall be cleared from security view point before deployment.
(e) All technical equipment that might be imported into India as a result of FDI shall require clearance from the relevant authority in the Ministry of Civil Aviation, Government of India.
(f) This policy is not applicable to M/s Air India Limited which is owned by the Indian Government.
4. CONCLUDING REMARKS
In last one year or so, economic growth in India has slowed. The fiscal deficit was increasing and inflation (including food inflation) was high. It is suggested by various researches/studies that FDI in multi-branch retail trading can help in controlling the food inflation in addition to stimulating the economic growth in India as FDI in multi-brand retail trading will create better infrastructure and more jobs in India by increasing the capital inflow.
In India the retail sector in India is the second largest employer after agriculture sector. It is expected that the opening of organised retail to FDI will benefit the farmers besides the growth of organised retail trade and creation of new jobs in India. More importantly, FDI in multi-brand product retail trading will boost construction and infrastructure sector as well because building new warehouses, cold-storages, and modern transport systems will be required. This new infrastructure will ensure that wastage of food products will go down; prices paid to farmers will go up; and prices paid by consumers will go down as shown in various studies/researches.
The eagerly awaited decision of Indian government to allowing the foreign airlines to pick up 49% stake in Indian airlines will not only help the Indian airlines to grow but it will also address the working capital requirements of the Indian airlines. New funds can be used by Indian airlines to repay their huge debts and thus reducing interest burden. Besides this, the Indian airlines will get access to better technology and management assistance from foreign airline partners.
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