From aviation to retail and even newspapers, India’s policy makes little sense—full opening up is a good idea.
While the aviation secretary was quick to say—in reply to a statement by Qatar Airways CEO—that India’s FDI rules did not allow an airline that is entirely owned the Qataris, CEO Al Baker did well to call out the hypocrisy in the policy. Why say that India allows 100% FDI in the aviation sector when, in fact, the rules allow aviation companies to buy only 49%, with the balance to be bought by non-aviation firms? In the Qatar case, the proposal was that Qatar International Authority (QIA) buys 51% and Qatar Airways (QA) buys 49%; but since QIA owns QA, this is not allowed. As the CEO put it at the aviation summit organised by the civil aviation ministry and IATA, “What we gathered first is that foreigners could own 100% of an Indian carrier …. And then we are told ‘no’”. The question the government needs to ask itself is why the rules are framed in this manner. After all, if the government has no problem with foreigners entirely owning an airline, why is there a problem if a foreign airline owns 100% since it will continue to pay taxes in the country and employ locals for its operations? How is an AirAsia India with the Tatas owning 51% better for the economy than an AirAsia India where AirAsia Berhad owns 100%? And if AirAsia Berhad can own only 49%, how is it going to find a non-Indian, non-airline partner to buy the remaining 51%? In other words, for all practical purposes, the effective FDI allowed is 49%, not 100%.
The policy on FDI in retail is just as odd. India does not allow FDI in retail as the belief is that deep-pocketed foreign retailers will offer large discounts and kill off the small mom-and-pop, or kirana, stores. But, since a Reliance Retail or a Big Bazaar has equally deep pockets, what sense does it make to protect kiranas from one type of retailer and not the other? And, in any case, since portfolio investors from abroad can buy into Indian retailers—that’s how Amazon’s investment arm has a 5% stake in Shoppers Stop—it is not clear why FDI is not allowed. And while this is the policy for bricks-and-mortar and even online retail, 100% FDI is allowed via the marketplace model; so, 100% FDI can come in online shopping, but by using an indirect route—and, as the Competition Commission of India’s order in the Flipkart-Walmart takeover matter makes clear, Flipkart is doing the very deep discounting that the government didn’t want.
At a time when every foreign newspaper is available in India, at least in the online form if not in the shape of the physical copy, what sense does it make to have restrictions on how much FDI can be allowed in newspapers and where editorial content should reside? In most cases where such restrictions exist, they are just a way of ensuring local players are able to extract some money for renting out their names while allowing the foreign partner to effectively run the show. It is high time the government relooked its FDI rules not just from the point of view of how easily they are circumvented, but in terms of what purpose they actually serve.