Indian Ministry releases draft paper for increased Foreign Direct Investment (FDI) into Retail and Defence sectors

The Indian Commerce and Industry Minister on Friday said that his Ministry will go ahead with the Foreign Direct Investment recommendations for the retail and defence sector in the country. A draft discussion paper of the industry department proposed to allow 51% FDI in the currently out of bound multi-brand retail sector, but with attached conditions.

In the government note, it is proposed that foreign multi-brand retail chains won’t be allowed to sell groceries and will be based only in Indian cities with a minimum population of one million. In essence, this means that all metros and category B cities will be able to host foreign stores.

Currently, the concept note is expected to be received by the cabinet for inter-ministerial talks before being released to the public for further discussion and comments. Additionally, the Indian government had as well asked for opinions over allowing a 74% FDI in defence sector, up from a current cap of 26%.

The minister revealed that, in the future, India’s FDI may change depending on thoughts that will bear ground at that time over FDI in the country. However, the government was currently in the process of preparing a discussion paper that is to be based on extensive discussions internally with various ministries before the paper is released to the public.

Bharti Retail, a subsidiary of the Bharti Enterprises Group, on track to invest about US$2 billion by the year 2018, said on Friday that it may scale up its investment if the Indian government relaxes FDI norms in the retail sector. The company’s Vice Chairman and Managing Director said that if the FDI regulations on investment are changed, the company may revisit its plans. He added that India risks losing billions of dollars in foreign funds into the retail sector if the government does not lessen FDI limitations early enough.

Bharti Retail questioned the government’s validation of denying foreign investment in multi-brand retail under the justification that organized retail would wipe out small Kirana and neighborhood mom-and-pop stores given the fact that big domestic retailers have already forayed into the market and that is yet to be seen.

Currently, the Indian government allows 51% FDI in single brand retail but none in multi-brand, while it allows 100% FDI in wholesale business. According to Bharti Retail, the government needs to allow at least 49% FDI in multi-brand retail if not more because this sector does not pose any security threat unlike FDI in the telecom and defence sectors.

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