The government’s move to ease foreign investment norms in multi-brand retail and increase limit for FDI in sectors such as telecom is likely to boost the confidence of foreign investors, which in turn will provide much needed impetus to the country’s economy, according to experts.
Welcoming the announcement made on Thursday, industry body CII said, “This is a commentary on the commitment of the government to take reforms forward at a time when the economy is in need of many such measures.”
Expressing hope that FDI interests will soon be seen in these sectors, the body said the present situation on the Current Account Deficit front necessitates greater foreign funds flow.
Even as the investment gates for multi-brand retail were opened up last year, no investment has taken place in the sector mainly as foreign investors were finding it difficult to meet the stringent investment conditions.
“These changes would address the concerns of the foreign investor who have till date tried to understand the nuances of the FDI policy related to multi brand retail. It has sent a message that the government’s intentions are to remove hurdles,” EY Executive Director (Tax & Regulatory Services) Dev Raj Singh said.
The government has diluted the mandatory 30 per cent local sourcing norms and permitted states to include cities with population less than 1 million for allowing multi-brand retailing.
Further, the definition of “control” in case of FDI in a company has been amended. “By aligning the "Control" definition with SEBI Takeover regulations and Companies Bill 2012 to include management rights/shareholders agreements, the government has tried to plug the loophole in the existing definition,” Mr. Singh added.
Mohit Bahl – Partner, KPMG in India said, “The changes to the policy remove some of the critical apprehensions that retailers had – it is a very positive step. The core principles of the conditions are here to stay but some of the relaxation, especially on the 50 per cent spend in back-end, and allowing 30 per cent sourcing to include farmer cooperatives and be measured only first time, demonstrate excellent responsiveness on part of the government. This is what the retailers wanted.”
Echoing similar views, PwC Executive Director (Tax & Regulatory Services) Goldie Dhama said the amendments show that the government is committed to make the policy conducive to foreign investors.
“By providing clarity… it should pave way for foreign investors to take the call and make investments. This will ensure substantial inflow of foreign investment which when channeled in back end infrastructure should ideally help in controlling the farm to fork wastage and reducing price,” he said.
Meanwhile, a spokesperson of British supermarket giant Tesco said, “Tesco welcomes the proposed changes in the policy. We are in the process of reviewing the conditions.”
The government decision to raise the FDI cap in telecom sector to 100 per cent is also likely to help the debt-ridden industry get fresh funds to lower financial burden.
“100 per cent FDI will finally allow foreign telecom players to own and fund the Indian telecom companies without having to be restricted by the Indian partners funding capacity. This will allow several Indian telecom companies to get the much needed funds from overseas without having to manage their operations by surviving on expensive local debt. The telecom sector as a whole will benefit from this move,” Mr. Dhama of PwC said.
Reacting to the announcement, industry body FICCI said increasing FDI limits is a significant move towards reviving the economy by improving on the current account deficit and encouraging fresh investments in the country.
On raising cap for the telecom sector from 74 per cent to 100 per cent, it said, “This is a significant milestone in the liberalization process in the Telecom sector that began in the mid-90s. The move will help the telecom industry to recover from its debt issues, thereby improving the financial health of the industry. The step will provide more flexibility to the existing shareholders and others looking at long-term investments in India in the sector.”