Notifies FDI in multi-brand retail, aviation and power sectors

Unmindful of the political crisis it is faced with, threatening the survival of the Central Government, the Manmohan Singh government, on Thursday, went ahead and notified 51 per cent foreign direct investment (FDI) in multi-brand retail, 100 per cent FDI in single-brand retail and 49 per cent FDI each in the civil aviation and power sectors, putting an end to speculation about a possible roll back of its decisions.

States free to decide

The notification about 51 per cent FDI in multi-brand retail, which operationalises the September 14 Cabinet decision, comes with the enabling clause asserting that State governments/Union Territories (UTs) would be free to take their own decisions in regard to implementation of the policy. A minimum of $100 million will be required to be invested by the foreign investor.

The notification also released a list of 10 States and UTs which have given their go-ahead for allowing 51 per cent FDI in multi-brand retail. All the applications would be processed by the Department of Industrial Policy and Promotion (DIPP) to determine whether the proposed investment satisfies the notified guidelines, before being considered by the Foreign Investment Promotion Board (FIPB) for approval. “Retail trading, in any form, by means of e-commerce, would not be permissible, for companies with FDI, engaged in multi-brand retail trading,” the notification states. Delhi, Assam, Maharashtra, Andhra Pradesh, Rajasthan, Uttarakhand, Haryana, Manipur, Jammu and Kashmir and the Union Territory of Daman and Diu and Dadra and Nagar Haveli have agreed to allow FDI in multi-brand retail.

The notification will pave way for global retail chains such as Carrefour, Tesco and Walmart to file their formal applications with the government to allow them to open shop in India.

Minimum investment

The FDI in multi-brand retail notification states the foreign investor should make a minimum investment of $100 million, 50 per cent of which should be invested in back-end infrastructure. This investment refers to the value at the time of installation, without providing for depreciation.

Also, 30 per cent of the products must be procured from small scale industries which have a total investment in plant and machinery not exceeding $1 million. It further states that fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poultry, fishery and meat products, may be unbranded. The foreign retail chains will be required to comply with self-certification. They have to keep all records, and the government will have the first right to procure agricultural produce.

As for the back-end investment, it states that investments made towards processing, manufacturing, distribution, design improvement, quality-control, cold chain, warehouses and packaging, will constitute back-end.

Retail chains will be allowed only in cities with a population of more than 10 lakh as per 2011 Census. There are 51 cities with a population of more than one million, based on 2011 Census.

As for the 100 per cent FDI in single-brand retail, the notification states it would include products sold under the same brand name internationally; product retailing will cover only those products that are branded during manufacturing and the foreign investor should be the owner of the brand.

Sales outlets

In States/ UTs not having cities with population of more than 10 lakh as per 2011 Census, retail sales outlets may be set up in the cities of their choice, preferably the largest city and may also cover an area of 10 km around the municipal/urban agglomeration limits of such cities. At least 50 per cent of total FDI brought in shall be invested in ‘back-end infrastructure’ within three years of the induction of FDI, where ‘back-end infrastructure’ will include capital expenditure on all activities, excluding those on front-end units. Expenditure on land cost and rentals, if any, will not be counted for purposes of back-end infrastructure.

FIPB approval

Notification was also issued for 49 per cent FDI in the aviation sector. The proposal of foreign airlines will have to be cleared by the FIPB before the investment can go through. FIPB has representatives from Ministries of Home, External Affairs and Civil Aviation and is being seen as a security measure. The 49 per cent limit will subsume FDI and FII (foreign institutional investor) investment.

Air transport services would include domestic scheduled passenger airlines; non-scheduled air transport services, helicopter and seaplane services; foreign airlines are also now allowed to participate in the equity of companies operating cargo airlines, helicopter and seaplane services, as per the limits and entry routes mentioned.

The notification for allowing 49 per cent FDI in power exchanges states that FII purchases shall be restricted to secondary market only; no non-resident investor/entity, including persons acting in concert, will hold more than 5 per cent of the equity in these companies and foreign investment would be in compliance with Securities and Exchange Board of India (SEBI) regulations.

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