Singh’s big bang: FDI in multi-brand retail, aviation; disinvestment okayed

The UPA government gambled big on Friday by going ahead
with a multiple FDI move, opening up multi-brand retail, aviation, broadcasting and power-trading exchanges.

It was an unexpected move given the fact that the scam-tainted government had been believed to be down and out but the prime minister told his cabinet colleagues: “If we have to go down, we have to go down fighting.”

With these measures, which Manmohan Singh described as “big bang reforms”, the Congress dared a recalcitrant ally like Mamata Banerjee’s Trinamool Congress to walk out of the coalition and even surprised the BJP.

The cabinet committee on economic affairs (CCEA) which met here permitted foreign direct investment (FDI) in multi-brand retail trading, amended policy in FDI in single-brand retailing, formulated policy on foreign investment in power trading exchanges, allowed 49% FDI in civil aviation sector, 74% FDI in broadcasting sector and also approved disinvestment of four public sector units (PSUs), which alone will generate Rs15,000 crore.

These issues had been pending for quite long because of opposition from key UPA allies, most notably the Trinamool Congress.

The boldest of the decisions was permitting FDI in multi-brand retail trading. Commerce minister Anand Sharma, who briefed the media said, the government has been attempting to build a consensus since November 24, 2011, when even after approval by the cabinet, the implementation was deferred due to opposition from allies.

Claiming that there had been a near consensus on the new proposal leaving the option to invite retailers on the states, he admitted that unanimity could not be built around big ticket reforms.

Charging the Left of suffering from a blinkered ideology, Sharma said that the BJP was playing the partisan politics.

“Before they left office, they had prepared a cabinet note allowing 100% FDI in multi-brand without any conditionality,” he said.
According to the proposal approved by the CCEA, at least 50% of the total FDI shall be invested in ‘back-end infrastructure’ within three years including investment made towards processing, manufacturing, distribution, design improvement, storage, agriculture produce infrastructure etc.

Other conditions are that the outlets have to be set up only in cities with a population of more than 10 lakh, with flexibility assured for hill states. The minister said the Centre has provided an enabling environment for the states and left the decision to actually set up such shops to the state governments.  A high-level group under the minister of consumer affairs will monitor the retailers.

While Bihar, Kerala, Madhya Pradesh, Tripura, West Bengal, and Odisha had opposed the decision, chief ministers of Delhi, Assam, Maharashtra, Andhra Pradesh, Rajasthan, Uttrakhand, Haryana, Manipur and Jammu and Kashmir had endorsed the policy.

The CCEA amended the policy on FDI in single-brand, making it mandatory for foreign investors to source 30% investments to cottage industries, artisans, craftsmen and small and medium enterprises (SMEs), if their FDI is beyond 51%.

The government had permitted 100% FDI in single brand product retail trading last January. Also 30% of the value of goods purchased shall be done from India. The minister said the idea was to encourage them to make India their manufacturing base, in order to generate employment.

The CCEA also went further to permit 48% FDI in power trading exchanges, to strengthen the power trading exchanges and to enhance the availability of power, as well as to improve its distribution.

Another major decision was allowing 49% FDI in civil aviation sector in both scheduled and non-scheduled air transport services.

Until now, foreign airlines were allowed to participate in the equity of companies operating cargo airlines, helicopter and sea plane services, but not in the equity of an air transport undertaking.
 The government has now allowed foreign airlines to invest, under the government approval route, in the capital of Indian companies up to 49% of their paid up capital.

The conditions are the chairman and at least two-third of the directors should be citizens of India and the substantial ownership and effective control be vested with Indian nationals.
In the broadcasting sector, the CCEA increased foreign investment from 46% to 74% in teleports, cable networks, DTH and mobile TV. The government said it had become necessary because of convergence of technologies involved in the telecom and broadcasting sector.

The CCEA also decided disinvestments in five PSUs, 9.59% in Hindustan Copper Limited, 12.15 in National Almunium Company Ltd, 10% in Oil India Ltd and 9.33% in MMTC.