Raises cap in telecom; dilutes conditions for multi-brand retail

In a bid to boost the economy and attract foreign investments, the Cabinet on Thursday approved a slew of relaxations in its Foreign Direct Investment policy.

While raising the FDI cap in the telecom, asset management and credit information sectors, it watered down a number of conditions for foreign investors in the multi-brand retail sector and eased norms in several others by allowing investments through the automatic approval route.

This is one of the fastest policy actions demonstrated by the UPA regime.

Opposition parties are understandably unimpressed by the changes, especially in the multi-brand retail sector, with many threatening to challenge it in Parliament.

“This is betrayal of Parliament. What they presented in Parliament then and what they are delivering now in the interests of foreign retail giants are two different things,” said BJP MP Prakash Javadekar.

CPI General Secretary Suravaram Sudhakar Reddy said the Government was indiscriminately changing the criterion for allowing FDI in retail. “We will challenge this in Parliament,” Reddy added.

The UPA may have to amend the Foreign Exchange Management Act in Parliament to implement the policy changes in multi-brand retail.

What remains to be seen is whether the changes will be enough to attract foreign investments, especially with the US economy showing signs of improving and India’s growth forecast taking a dip.

The Industry Department has high expectations from multi-brand retailers, such as Walmart and Tesco, which had initially shown great enthusiasm in investing in the country, but they may delay their plans and wait for elections next year.

New ‘control’ norm

The Cabinet Committee on Economic Affairs (CCEA) also approved a new definition of ‘control’ for calculation of direct and indirect foreign investment in a company to avoid controversies, such as the one created by the proposed Jet-Etihad deal. The new definition includes not just the power to appoint majority of directors but also to control management and policy decisions on the basis of shareholding, management rights, shareholder agreements or voting agreements. This may, however, not apply to the Jet-Etihad deal, which has already been approved

Commerce and Industry Minister Anand Sharma explained that it will take a long time for the Government to notify the decisions taken on the definition of control as other related changes in law have to be made, including amending FEMA. This means the Jet-Etihad deal may cruise through when the Cabinet takes it up.

(This article was published on August 1, 2013)
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