The government has not given up on liberalizing the foreign direct investment (FDI) regime despite suffering a setback on allowing foreign retail chains to set up shop in India. Within a week of announcing a pause on FDI in multi-brand retail, it is beginning fresh consultations with stakeholders, starting Tuesday, to get the plan back on track. To begin with, the food processing sector and small and medium enterprises are being consulted, with farmer groups and traders to follow.
Separately, the finance ministry is in talks with the Securities & Exchange Board of India (SEBI) to see how foreign airlines that acquire stakes in Indian carriers are not bogged down by the new Takeover Code in completing transactions. The new rules mandate that companies acquiring 25% or more in another entity have to make an open offer for an additional 20% stake. If the rules were to be applied to the civil aviation sector, then the FDI ceiling would be breached as the Manmohan Singh government is planning to allow foreign airlines to acquire up to 26% stake in Indian entities, which has hitherto been a taboo.
Sources said the issue is expected to be sorted out over the next few days as all ministries – including civil aviation that initially suggested a 24% cap – are now on board. If everything goes according to script, the government is planning to get Cabinet clearance soon after the winter session of Parliament ends.
The move, which is back in favour after a decade, is expected to ease the pressure on debt-laden airlines such as Vijay Mallya-promoted Kingfisher. While Indian airlines were earlier resisting the entry of overseas giants, they are the ones who are now keen on a partnership. Ditto for FDI in multi-brand retail where again, Indian promoters are now hoping that global chains will tie up with them and also ease the burden.
While a part of the discussion is aimed at getting feedback from the stakeholders, a major part of the exercise will focus on educating them about the advantages of allowing foreign retailers who are expected to bring in new technology to reduce wastage, generate jobs and help local vendors scale up to meet international standards. The discussions are also expected to focus on providing additional safeguards to protect local interests. Last week, the government had said it had decided to put the plan to allow 51% FDI in multi-brand retail on hold till a consensus was reached.