51% FDI in multi-brand retail as govt opts for major reforms

Opting for big-bang reforms, the government on Friday allowed politically-risky 51% FDI in multi-brand retail, 49% investment by foreign airlines in aviation sector and sale of equity in four PSUs.

Battling perceptions of policy paralysis, the government announced the surprise decisions after meetings of the union cabinet as well as the Cabinet Committee on Economic Affairs (CCEA), prompting angry reactions from its key ally TMC as well as BJP and Left parties.

The slew of reforms decided upon include raising FDI cap in broadcasting from 49% to 74% and allowing foreign investment in power exchanges.

The UPA government had first made an attempt to introduce FDI in multi-brand in November last year but beat a hasty retreat following stiff opposition from TMC, Samajwadi Party as well as opposition parties.

It has now decided to take the plunge within days of the conclusion of recent session of Parliament which was disrupted over coal scam.

The decisions come on top of Friday's hike in diesel prices and capping of supply of subsidised LPG to cut oil subsidises which has already invited protests from allies and opposition.

"Let us not confuse consensus with unanimity. For unanimity we will have to wait in eternity. This (Friday's decision) has consensus," Commerce Minister Anand Sharma told a press conference here clearly conveying the message that the Centre has decided to go ahead with the reforms despite opposition.

Sharma said they respected West Bengal Chief Minister Mamata Banerjee's position on multi-brand retailing. "It is her prerogative to implement or not. It is equally our prerogative to implement in the other states (which are keen on it)".

The Cabinet also diluted local sourcing norms for 100% foreign direct investment (FDI) in single brand retail by dropping the provision of 30% compulsory sourcing from small and medium enterprises (SMEs).

For multi-brand retailing, a minimum investment of USD 100 million has been fixed, half of which necessarily has to be in creating storage and warehousing facilities in rural areas.

Front end retail stores would be allowed to be set up only in cities with a minimum of one million population. However, this norm has been diluted for hilly states which have been authorised to decide on criteria for choosing big cities.

While the government had previously permitted 49% in aviation sector, the Cabinet on Friday allowed foreign carriers to investment in domestic airlines. The move would help cash-strapped carriers like Kingfisher and SpiceJet to bring in strategic partners. 

Permission has now been granted to foreign airlines to invest under the government approval route in Indian carriers operating scheduled and non-scheduled transport services.

A scheduled operator's permit can be granted only to a company that is registered and has its principal place of business in India with its chairman and at least two-third of directors who are Indians.

Substantial ownership and effective control should be vested with Indian nationals.

The companies which will divest their equities are Hindustan Copper Ltd (9.59%), Nalco (12.15%), Oil India Ltd (10%) and MMTC (9%). The sale of shares is likely to fetch in about Rs 15,000 crore, half of the budgetary disinvestment target set for the current fiscal year.

Another major decision covers the broadcasting sector by enhancing foreign investment that is expected to expand the reach of broadcasting services.

Under this decision, teleports, DTH and cable network services can attract foreign investment up to 74% over the present limit of 49%, which will be through the automatic route. Beyond 49% would come through the government route.

At present, there is no specific dispensation under FDI for mobile TV. It has now been decided to permit FDI up top 74%.

However, the existing limit of 74% foreign investment in the Headend-in-the Sky Broadcasting Service would continue.