A couple of weeks after Prime Minister Manmohan Singh had given the green signal on relaxing foreign investment in several key sectors, the Government on Thursday cleared liberalisation of foreign direct investment (FDI) norms in fields like multi-brand retail, telecom, defence production and insurance, with an eye on boosting the sluggish economy.
At the same time the Government also cleared the air on the definition of ‘control’ especially in the context of mergers and acquisitions involving foreign entities, with the aim of attracting greater overseas investments in the long run. The Cabinet headed by Prime Minister Manmohan Singh diluted the mandatory 30 per cent local sourcing norms for multi-brand retailers and permitted states to include cities with population less than 1 million for allowing multi-brand retailing.
The Prime Minister had on July 16 decided to relax foreign investment norms in several sectors and these were formally approved by the Cabinet. Commerce Minister Anand Sharma while briefing reporters after the meeting of the Cabinet Committee on Economic Affairs (CCEA), said that the relaxation in multi-brand retail norms will give “more clarity and more space to investors”.
Sharma said multi-brand retailers like Walmart and Tesco will now have to source 30 per cent of their products from small and medium enterprises only at the time of start of business. With investment in back-end infrastructure, he said the investor will have to make the mandatory $ 50 million at the first engagement only. Thereafter, the investment would depend upon the business needs.
Economic Affairs Secretary Arvind Mayaram, whose recommendations for raising FDI in several sectors were by-and-large accepted, said, “we are expecting FDI flows will increase and the foreign investors will have much greater confidence in the Indian foreign investment policy. I certainly think it will have a positive impact on the forex flows in the current year.” Sharma further added that the Government has decided to raise the sectoral FDI cap in the insurance sector from 26 per cent to 49 per cent under automatic route under which companies investing don’t require prior Government approval.
A Bill to raise FDI cap in the insurance sector is pending in the Rajya Sabha and the Government hopes to rope in the principal Opposition parties mainly the BJP, to get it cleared during the forthcoming Monsoon session, along with the Pension Fund Regulatory and Development Authority (PFRDA) Bill, which is pending in lok Sabha. Meanwhile it was also decided by the CCEA to allow 49 per cent FDI in single brand retail under the automatic route and beyond through the Foreign Investment Promotion Board (FIPB) route.
In case of PSU oil refineries, commodity bourses, power exchanges, stock exchanges and clearing corporations, FDI would be allowed up to 49 per cent under automatic route as against current routing of the investment through FIPB. In basic and cellular services, FDI was raised to 100 per cent from current 74 per cent. Of this, up to 49 per cent would be allowed under automatic route and the remaining through FIPB approval. A similar dispensation would be allowed for asset reconstruction companies and tea plantations. FDI of up to 100 per cent was allowed in courier services under automatic route. Earlier, similar amount of investment was allowed through FIPB route.
In credit information firms, 74 per cent FDI under automatic route has been allowed. While the FDI cap in defence sector remained unchanged at 26 per cent, it was decided that higher limits of foreign investments in ‘state-of-the-art’ technology manufacturing would be considered by the Cabinet Committee on Security (CCS). At the same time, elaborating on the changes effected in the definition of “control”, Sharma said that it would include “right to appoint majority of directors” and to “control the management through changing the shareholding pattern or voting agreements”.