Reforms in India: Narendra Modi government set to open FDI floodgates, power up jobs creation

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August 15, 2017 7:17 AM

As a prelude to this, finance minister Arun Jaitley held a meeting on Monday to review the country’s FDI regime, aimed at making it even easier for companies from overseas to invest here and create jobs.

Reforms in India, Narendra Modi, Narendra Modi government, FDI floodgates, jobs creation, jobs creation in india, FDI regime, FDI in multi-brand retail, Nirmala Sitharaman, Piyush Goyal, food retail, relaxations in the FDI regimeSectors like retail and construction could see further easing; follows two big rounds of relaxations. (Image: PTI)

The Narendra Modi government is set to announce opening the floodgates to foreign direct investment (FDI) further. As a prelude to this, finance minister Arun Jaitley held a meeting on Monday to review the country’s FDI regime, aimed at making it even easier for companies from overseas to invest here and create jobs, sources said. Although the the government remained non-committal on the outcome of the meeting, Jaitley is believed to have discussed a few proposals for further liberalisation in certain sectors including retail and construction. The government, the sources added, is examining allowing 100% FDI in single-brand retail through the automatic route, giving conditional permission for up to 100% FDI in multi-brand retail from 51% now and approval for selling a certain percentage of locally-produced non-food items, along with the edible ones. In construction, it is considering allowing FDI in even undeveloped and underdeveloped plots in a project, albeit with certain conditions.

Currently, up to 51% FDI is allowed in multi-brand retail, via the government route. In single-brand retail, while up to 100% FDI is allowed, investment beyond 49% needs government approval. Up to 100% FDI is permitted (with government approval) in trading — including through e-commerce — of food items produced in India. In the construction sector, the government now allows up to 100% FDI in only developed plots where the basic trunk infrastructure is already in place.

Commerce and industry minister Nirmala Sitharaman, power minister Piyush Goyal and senior officials with the department of industrial policy and promotion attended the meeting. It comes a month after a similar meeting was chaired by Prime Minister Narendra Modi and is sync with the 2017-18 Budget announcement that the government would consider further easing FDI rules.

The prospect of permitting 100% FDI in multi-brand retail is also being evaluated although a decision on this needed to be taken at the highest level of the political establishment, especially since the BJP had earlier opposed the regime. The reason for an apparent rethink on multi-brand retail FDI is the surging demand for jobs and criticism of the government for “jobless growth”.  If this proposal is okayed, global players like Walmart and Carrefour would be able to set up their own outlets here without a local partner. However, sources said as and when 100% FDI is allowed, it would accompany strict conditions that foreign retailers will sell only those items that are produced in India and create massive jobs. Some of the other conditions, such as a minimum investment of $100 million and at least $50 million investment on storage and logistics infrastructure, are applicable even now for multi-brand retail.

The food processing ministry has also been pushing to partially ease rules for retailers to allow them to sell a percentage of non-food items, such as soaps, shampoos and toothpastes, along with food products. At present, up to 100% FDI is permitted in retailing of food products. According to industry estimates, the country’s food and grocery market is the world’s sixth largest, with retail accounting for 70% of sales. Recently, e-commerce players Amazon, BigBasket and Grofers received approval for retailing locally-produced food products, promising a combined investment of $695 million.

The suggestion to relax the rule in food retail comes after several global retailers such as Walmart, Tesco, Metro Cash and Carry and Auchan Group conveyed to the government their willingness to set up shop here provided more items are allowed to be added to the shelves. Although these retailers haven’t submitted details of investments that may make in India, the food processing ministry believes potential investments could be as much as $5-10 billion if rules are suitably relaxed. The Modi government has already announced two big rounds of relaxations in the FDI regime, first in November 2015 and then in June last year, easing rules in over a dozen sectors ranging from real estate,  pharmaceuticals, food marketing, aviation and defence to e-commerce and banking.

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