The NDA government’s latest move to liberalise the foreign investment regime is part of an ongoing process and such economic reforms will continue irrespective of any adverse state-level poll outcomes for the alliance or the BJP in the future.
Stating this, commerce and industry minister Nirmala Sitharaman , in an interaction with The Hindu ’s Arun S , said the FDI reforms were not a public relations exercise to counter the NDA’s recent drubbing in Bihar polls. She said it was also not an attempt to help Prime Minister Narendra Modi in reassuring investors in the West that his government will not go back on the promise to roll out reforms even if the BJP/NDA suffers assembly-level electoral setbacks.
In what it said was a ‘Diwali gift’ for investors and the public, the NDA government – just two days after Bihar poll results -- announced its ‘Biggest Bang’ foreign investment policy reforms with an aim to boost investment and job creation in 15 sectors such as defence, banking, construction and single-brand retail. The decision incidentally came on the eve of Modi’s departure to the UK and later to attend the G20 meeting in Turkey.
To win over critics such as labour unions and farmers’ unions, the government will hold talks with them before getting the FDI reforms’ decision formally cleared by the Union Cabinet as per due process within a month, Sitharaman said. (Edited excerpts).
Q: Was the surprise announcement (of the FDI policy reforms) meant for a positive narrative after the terrible defeat in Bihar?
A: The poll results were out on November eight and the FDI decision was announced on the 10th. So even if you assume it was done because of Bihar elections, it is practically impossible to work on so many decisions in such less time. The fact remains that not one or two elections, virtually nothing in the last one year has stopped us from doing what we had committed ourselves to. This government is committed to bringing in reforms and we are therefore going on with it.
So such reforms will keep happening. It has been done, is done, and will be done, after taking inputs from all stakeholders. Only a few months ago we came out with one similar set of decisions, including in defence, to liberalise the FDI regime.
The recent decisions on 15 sectors will have a bearing on 30-odd activities, and will have a major impact on the economy. Sectors like construction were desperate for funds for a long time. You and I were waiting for our flats because projects were not getting completed. So such sectors which have a potential for generating more employment will be benefited.
Also, last year’s FDI data showed that FDI into India grew by around 40% when in the world over, such inflows saw a drop of 16%. So FDI inflows are growing at a fairly healthy rate in India.
Following these kind of decisions to liberalise the FDI regime, there will be more discerning investment wanting to come into the country. Also the recent decision to remove the distinction between FDI and portfolio investment and to have a composite cap allowing for complete fungibility is going to help attract more inflows.
Q: Are there any more formalities to be completed to make the announcement effective?
A: The Prime Minister has already given his approval for the decision. Such decisions are allowed as per the Government’s Transaction of Business Rules. But, according to those rules, within a month of such a decision, we have to go back to the Union Cabinet and get it approved. We are ready with the Cabinet note.
Q: The seniors in BJP had criticised the party leadership for the Bihar polls drubbing. Is the party united on its stance on economic policies?
A: A lot of discussions and debates happen in our party. Isn’t it good to have a democratically run party rather than a dynastic one? So obviously discussions do happen and they are for the good. It is just that some times they come out in the open, some times they don’t.
Q: A few months ago, when the government took the decision to introduce the composite cap policy on foreign investment, you had said the banking sector was kept out of it because the government did not want ‘fly by night’operators or quick money coming in and going out of the sector. But within a few months, the government has now reversed this stand in the latest FDI policy changes. What is the reason?
A: We have allowed time to pass. And in the meantime, we received inputs from the sector which gave us enough confidence that we can now open it up further. We had wide-ranging consultations including with the Reserve Bank of India and inputs were taken to look at the possibilities of risks and challenges.
Q: Farmers’ unions and labour unions have criticised the move to liberalise the FDI regime. There is also a possibility of protests from labourers in the plantation sector, which has now been opened up further. Do you have any plans to take their suggestions on board?
A: We are willing to speak and engage with any number of people on these decisions. In fact, this evening there is a meeting (with the Bharatiya Mazdoor Sangh). These are decisions that are taken keeping the national interest in mind. We are not going to hurt any factor of production. We are not going to hurt land or labour.
These decisions were taken to get some buoyancy in sectors such as construction that are cash-starved. You and I have paid advanced money for getting one flat for ourselves. But till today that has not happened. Neither are you better off, nor are the developers. Do you want the projects to be completed or not? So to benefit you, me and the sector, if there is a need to open up so that money comes in, after considering all other factors, we have now eased the norms. But this is not at all meant to ask foreign investors to come in and finish off all the Indian companies.
Q: Will there be a rollback of some of these decisions following the criticism?
A: No.
Q: In the defence sector, foreign investment proposals in excess of 49% and upto even 100% can now be considered by the Foreign Investment Promotion Board (FIPB) instead of the extant policy of getting the approval of Cabinet Committee on Security (CCS) for them. Also, some consultants say it is not compulsory to bring in state-of-the-art technology in case of proposals over 49%. Is this true?
A: First of all, defence and home ministries are represented in FIPB. They take care of all the security and technology related issues. We have done away with the role of CCS for the sake of ease of doing business. We do not want companies to get these clearances twice, one from the FIPB and then by the CCS.
Besides, we have also said that in cases of infusion of fresh foreign investment within the permitted automatic route level, resulting in change in ownership pattern or transfer of stake by the existing investor to a new foreign investor, Government approval will be needed. This is applicable to companies which have already obtained licences.
Also, the condition -- that foreign investments above 49% will be considered on a case-to-case basis and only where investment is to result in access to state-of-art technology -- stands in the new policy too even in cases of such investments upto 100%.
Q: The policy reform includes several changes in the single brand retail trade (SBRT) space. Will the government slowly start encouraging foreign investment in the multi brand sector too?
A: In the review of FDI policy conditionalities for single brand retailing, we are talking about Indian manufacturers, who are by definition those who produce at least 70% of their products within India and who can source the upto 30% of their products from those who manufacture in India. In other words, everything that this Indian manufacturer is dealing with is ‘Made In India’. The finance minister had in his Budget speech that such manufacturers will be allowed to sell his wares even through e-commerce. What we have done here is to allow this Indian manufacturer to sell its own branded products in any manner, wholesale, retail and including through e-commerce platforms.
So, instead of going and searching for market places provided by other platform providers, it can sell its wares in its own market place which it creates for its products through those platforms. This provision is essentially for the Indian manufacturer only.
100% FDI was already allowed in SBRT. They were allowed to be selling Business-to-Business (B2B). Cash and carry is not defined differently. They are on their own a business entity. Here also some single brand is selling to another business. There is no contradiction. We are not supporting such players as multi-brand entities, but as a business. 100% was already allowed in single brand B2B.
As far as multi-brand retail is concerned, there is no change in our stance (which is to discourage foreign investment).
