The United Progressive Alliance government is hastening slowly with its review of the foreign direct investment policy.
Political sensitivities forcing UPA govt to do a balancing act
NEW DELHI: The United Progressive Alliance government is hastening slowly with its review of the foreign direct investment policy.
The Union cabinet meeting on Thursday did not take up proposals such as opening up commodity exchanges and air traffic services and relaxing procedures in other sectors including petroleum refining and marketing.
But officials are confident these will be taken up shortly, attributing the delay to a crowded agenda on Thursday.
Commerce and industry minister Kamal Nath had said in earlier in the week that the FDI policy review was coming up before the cabinet on Thursday.
The government expects muted opposition, if any, from the Left parties seen as on the back foot over a host of issues including the Nandigram and Taslima episodes.
Even then, the government is careful to steer clear of the politically sensitive issue of FDI by multinational retail chains.
This has, in fact, been kept out of the FDI policy review throughout since the department of industrial policy and promotion began the exercise in April.
After UPA chairperson Sonia Gandhi’s letter to Prime Minister Manmohan Singh in January asking the government to carefully evaluate the impact of the entry of organised big retail chains on millions of small shop-keepers and retailers, the government has treated the question on a separate track of big versus small rather than of foreign versus domestic capital.
A detailed study by the ICRIER (Indian Council for Research on International Economic Relations) ordered by the industry ministry has reportedly come up with certain conclusions that are not unfavourable to the advent of big organised retailing in the country, but the government still sees it as a political hot potato.
The opening up of the retail trade to FDI is, therefore, not among the proposals before the cabinet.
The government will pitch the policy review on the need to make India an even more attractive destination for foreign investment, focusing on creation of jobs and enhanced economic activities.
Kamal Nath has said the review is aimed at streamlining FDI procedures, giving preference to sectors that will boost economic activities and create jobs.
At present, FDI of up to 100% is allowed in cash-and-carry wholesale trade. Also, FDI of up to 51% is allowed in single-brand retail.
But FDI is prohibited in multi-brand retailing, leaving no way for large multinational retail giants such as Wal-Mart and Carrefour to gain entry, other than through franchising with local partners for providing logistics, supply chain or even brand name support.
The government has been toying with the idea of opening a small, limited window for foreign investment in retail in specific sectors such as electronics, sports goods, building materials and stationery. But this too is not a part of the proposals before the Cabinet because of “political sensitivities”, officials said.
The opening up of the commodities exchanges to FDI is the trickiest of the proposed policy changes. Here, the government is taking a cautious approach and FDI will be capped at 25%.
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