The government is considering allowing 100 per cent FDI through automatic route in single brand retail to attract a larger number of global players in the sector. According to sources, there is a proposal to allow 100 per cent Foreign Direct Investment in single brand retail sector “through automatic route” with certain conditions.
Currently, FDI up to 49 per cent is permitted under the automatic route but beyond that limit, government’s nod is required. Foreign investment is allowed subject to certain conditions, which require products to be of a ‘single brand’ only and to be sold under the same brand globally.
Furthermore, in respect of proposals involving FDI beyond 51 per cent, it is mandatory to source 30 per cent of the value of goods purchased from India, preferably MSMEs. The issue to ease the FDI policy in the sector is under discussion between the ministries of finance and commerce and industry.
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“The move assumes significance as the government wants to provide easy policy for both domestic and foreign investors. Single brand retail trading sector has huge potential to attract FDI,” said the source. The government last year tweaked the mandatory local sourcing norm. It decided to give exemption to foreign firms coming in with state-of-the-art technology from the mandatory local sourcing norms for up to three years.
For the first time in February 2006, the government allowed 51 per cent FDI in the segment. During 2006-07 to 2014-15, the sector attracted USD 135 million of foreign direct investment. Continuing with its relaxation drive, the government is also mulling a proposal to increase FDI cap in print media to 49 per cent under automatic route.
Currently FDI up to 26 per cent is permitted through government approval route.
During 2015-16, FDI into the country increased by 29 per cent to USD 40 billion, up from USD 30.93 billion in the previous fiscal.
Foreign investments are considered crucial for India, which needs around USD 1 trillion for overhauling its infrastructure sector such as ports, airports and highways to boost growth. Foreign investments will help improve the country’s balance of payments situation and strengthen the rupee value against other global currencies, especially the US dollar.