Retail expansion: Big and Easy

Retail expansion: Big and Easy

Cabinet approves 100% FDI in retail; India Inc cheers, traders condemn

100% FDI in construction related to townships, housing, infrastructure, broking

Agency Report | New Delhi | 10 January, 2018 | 10:00 PM

The Union cabinet's approval of 100 per cent Foreign Direct Investment (FDI) in single-brand retail on Wednesday drew mixed reactions with industry observers lauding the move while traders' bodies opposed it as "a serious matter for small businesses".

India Inc on Wednesday hailed the amendments in the Foreign Direct Investment (FDI) policy that aims to promote foreign capital inflow in sectors like single brand retail, civil aviation and construction.

As per the Union cabinet’s decision, changes to FDI policy will attract foreign investments and create employment.

“The relaxations in FDI policy announced by the Cabinet today are most welcome and would certainly lead to further increase in foreign investment inflows,” said Chandrajit Banerjee, Director General of the Confederation of Indian Industry.

“Today’s announcement includes multiple measures targeted at specific sectors where opportunities exist,” said Banerjee.

EY India’s Executive Director, Tax and Economic Policy Group Dev Raj Singh said: “In line with the intent of ease of doing business and with a view to attract larger FDI inflows, the Government further liberalised the FDI Policy in various sectors like single brand retail trading, construction development and civil aviation.”

On sector-specific basis, 100 per cent foreign investment has been allowed in single brand retail trading and construction development, while national carrier Air India was opened up for FDI participation.

Besides, the government also decided that foreign institution investors and portfolio investors be allowed to invest in power exchanges through primary market and amended the definition of “medical devices” in its FDI policy.

Subsequently, the new FDI norms related to single brand retail drew mixed reactions with some industry observers lauding the move while traders’ bodies opposed it as “a serious matter for small businesses”.

“This is another positive step from the government towards ease of doing business in India. By allowing 100 per cent FDI in single brand retail under the automatic route, foreign entrants will find it easier to set up operations in the country,” said Dhanraj Bhagat, Partner, Grant Thornton India LLP.

However, the Confederation of All India Traders (CAIT) strongly condemned the government’s decision stating that the step will affect smaller businesses by paving the way for foreign brands to dominate the country’s retail trade.

“The CAIT strongly opposes the move to allow 100 per cent FDI in single brand retail through automatic route as it will facilitate easy entry of multinational corporations in retail trade of India and will also violate the poll promise of BJP,” the traders’ body said in a statement.

“It’s a serious matter for small businesses. It is a pity that instead of formulating policies for the welfare, upgradation and modernisation of existing retail trade, the government is more interested in paving way for the MNCs to control and dominate the retail trade of India,” it added.

Rajat Wahi, Partner, Deloitte India, said: “Global brands across different categories, from apparel to electronics to accessories will be aided through this, providing further options to Indian consumers and improving India’s ranking in ease of doing business.”

On the decision to open up Air India for FDI up to 49 per cent, independent aviation expert Amrit Pandurangi said: “Air India is not an easy transaction… so 49 per cent is good, but may not be good enough to make it attractive. They need to first sort out a number of issues on Air India’s financial debt, people-related issues.”

In addition, Cabinet’s decision to allow 100 per cent FDI in construction development related to building townships, housing, infrastructure and real estate broking services was welcomed by the industry.

“FDI in construction is expected to provide a significant boost to the real estate sector,” said Ashwin Sheth, Chairman and Managing Director, Sheth Group.

“The Government’s ambitious projects like ‘Housing For All By 2022′ and ‘Construction of 100 Smart Cities’ will now flourish owing to the substantial participation by the foreign investors,” Sheth added.

According to Abhishek Goenka, Leader, Direct Tax, PwC India, the clarification that brokerage services are not real estate business, and hence, eligible for 100 per cent FDI under the automatic route was long overdue.

“The industry was saddled with differing views and interpretations on this count, and this should now ease the pain for existing international players, as well as provide clarity for future joint ventures and wholly owned presence in India,” Goenka said.
“This is another positive step from the government towards ease of doing business in India. By allowing 100 per cent FDI in single brand retail under the automatic route, foreign entrants will find it easier to set up operations in the country,” said Dhanraj Bhagat, Partner, Grant Thornton India LLP.

According to Aashish Kasad, India region tax leader, consumer products and retail, EY India, the step will give the Indian consumers access to several international brands.

“Permitting 100 per cent FDI in single brand retail under the automatic route is another progressive step by the Government of India towards attracting foreign investment and ease of doing business in India. This should also generate employment and give the Indian consumers access to several international brands,” said Kasad.

In major changes liberalising FDI in key sectors, the Union cabinet on Wednesday approved 100 per cent foreign investment in single brand retail trading.

“It has now been decided to permit 100 per cent FDI under automatic route,” an official release said here, following a Cabinet meeting.

“It has been decided to permit single brand retail trading entity to set off its incremental sourcing of goods from India for global operations during initial five years, beginning April 1 of the year of the opening of first store against the mandatory sourcing requirement of 30 per cent of purchases from India,” it added.
Besides, the government also decided that foreign institution investors and portfolio investors be allowed to invest in power exchanges through primary market and amended the definition of “medical devices” in its FDI policy.

The decisions, taken at a meeting of the Union Cabinet chaired by Prime Minister Narendra Modi, were intended to liberalize and simplify the FDI policy to provide ease of doing business.

“In turn, it will lead to larger FDI inflows contributing to growth of investment, income and employment,” an official statement said.

The present FDI policy on single brand retail trading allows 49 per cent FDI under automatic route and FDI beyond 49 per cent and up to 100 per cent through government approval route.

“It has now been decided to permit 100 per cent FDI under automatic route. It has been decided to permit single brand retail trading entity to set off its incremental sourcing of goods from India for global operations during initial five years, beginning April 1 of the year of the opening of first store against the mandatory sourcing requirement of 30 per cent of purchases from India,” the statement said.

For this purpose, it said, incremental sourcing would mean the increase in terms of value of such global sourcing from India for that single brand (in Indian rupee terms) in a particular financial year over the preceding financial year, by the non-resident entities undertaking single brand retail trading entity, either directly or through their group companies.

After completion of five-year period, the SBRT entity shall be required to meet the 30 per cent sourcing norms directly towards its India’s operation, on an annual basis.

The Cabinet also decided to allow 100 per cent FDI in construction development relating to building townships, housing, infrastructure and real estate broking services.

Under the present policy, foreign airlines are allowed to invest under government approval route in the capital of Indian companies operating scheduled and non-scheduled air transport services, up to the limit of 49 per cent of their paid-up capital.

However, this was not applicable to Air India, thereby implying that foreign airlines could not invest in the national carrier owned fully by the government.

“It has now been decided to do away with this restriction and allow foreign airlines to invest up to 49 per cent under the approval route in Air India subject to the conditions that foreign investments in Air India including that of foreign airlines shall not exceed 49 per cent either directly or indirectly.”

Making changes in the sector relating to power exchanges, the government removed the restrictions on investment by foreign institute investors and portfolio investors to invest in power exchanges through primary market as well.

Under the present policy, FII and FPI purchases were restricted to secondary market only.

In the pharma sector, the Cabinet decided to amend the definition of medical devices in the FDI policy.

“At present, the FDI policy in the pharma sector inter-alia provides that definition of medical device as contained in the FDI Policy would be subject to amendment in the Drugs and Cosmetics Act. As the definition as contained in the policy is complete in itself, it has been decided to drop the reference to Drugs and Cosmetics Act from FDI policy.”

The Cabinet also decided to make changes relating to competent authority for examining FDI proposals from countries of concern.

As per the existing procedures, FDI applications involving investments from countries of concern requiring security clearance are to be processed by the Home Ministry for investments falling under automatic route sectors and activities.

“It has now been decided that for investments in automatic route sectors, requiring approval only on the matter of investment being from country of concern, FDI applications would be processed by Department of Industrial Policy and Promotion (DIPP) for government approval.

“Cases under the government approval route, also requiring security clearance with respect to countries of concern, will continue to be processed by concerned administrative department or ministry.”

In another change, it has now been decided that issue of shares against non-cash considerations like pre incorporation expenses, import of machinery etc shall be permitted under automatic route in the case of sectors under the automatic route. (IANS)