Next wave of liberalisation in FDI on the cards

Matter may be taken up at the next Cabinet meeting after Modi returns from his four-nation trip

After abolishing the Foreign Investment Promotion Board (FIPB) last week, the Narendra Modi government is close to announcing the next big wave of liberalisation in foreign direct investment (FDI) norms. This could include allowing FDI in multi-brand retail beyond only domestic food products, putting single-brand retail FDI on automatic route in entirety and increasing the FDI limit in print media from 26% to 49%.

Business Standard has learnt from senior government officials that inter-ministerial consultations on FDI between the finance ministry, the Department of Industrial Policy and Promotion (DIPP) and other ministries are nearing completion. “The final draft Cabinet note regarding further opening up of FDI is being prepared after incorporating inputs from all stakeholders in the government,” said an official.

The matter may be taken up as early as the next Cabinet meeting, another official said, after Prime Minister Narendra Modi returns from his visit to Germany, Spain, France and Russia.

The argument of allowing FDI in ‘food-plus’ has been pushed by Union Food Processing Minister Harsimrat Kaur Badal. In June last year, the government allowed 100% FDI in multi-brand food retail, including through e-commerce. However, food products have to be produced, processed or manufactured in the country.

The move has drawn little interest from international retail players so far who have complained that just having “food only” stores was not a viable option. Multinationals, including Walmart and French retailing major Auchan Group, have indicated their interest in investing in the country if the government allows “food plus” in FDI in retail, official sources said.

While the food processing industries ministry wants to allow retailers to sell non-food items to the tune of 25% of all shelf products, the DIPP and other ministries have disagreed with this assessment.

In print media, the current FDI policy permits 26% investment in the publishing of newspapers and periodicals dealing with news and current affairs. This is allowed only through approval route. It is learned from different sources that the cap may be increased to 49%.

While the bureaucracy has no issues with the proposal it has become a political issue. “The issue is a sensitive one and discussions have been guided by the Prime Minister’s Office on multiple occasions,” said an official.

There is also the matter of single-brand retail. While 100% FDI is allowed, 49% is through automatic route and beyond that is approval route. A proposal to allow 100% FDI through automatic route, provided the sourcing norms are met, could also be considered as part of the Cabinet note. If such a proposal is accepted by the government, it could mean that companies like Apple and Zara can sell in India through wholly owned subsidiaries.

Last week, the Cabinet approved the abolition of FIPB, which was, for 25 years, the single-point window for clearing foreign direct investment proposals requiring government nod. The body will be replaced by a new mechanism under which the proposals will be approved by the ministries concerned. Proposals in sensitive sectors will require the home ministry’s approval.

The respective administrative ministries will now clear proposals in consultation with the DIPP, which will also issue the standard operating procedure (SOP) for processing of applications and decision of the government under the extant FDI policy.

Opening up to foreign investment

• Govt could allow FDI in multi-brand retail beyond only domestic food products and increase the FDI limit in print media from 26% to 49%
• The proposal to allow 100% FDI through automatic route, provided sourcing norms are met, could also be considered
• The argument of allowing FDI in ‘food-plus’ has been pushed by Union Food Processing Minister Harsimrat Kaur Badal
• Inter-ministerial consultations on FDI between the finance ministry, the Department of Industrial Policy and Promotion and other ministries are nearing completion
• The matter may be taken up as early as the next Cabinet meeting, after Prime Minister Narendra Modi returns from his four-nation trip