In a recent review of the policy the government has amended the sectoral caps and/or entry routes in some sectors viz. petroleum & natural gas; commodity exchanges; power exchanges; stock exchanges, depositories and clearing corporations; asset reconstruction companies; credit information companies; tea sector including tea plantations; single brand product retail trading; test marketing; telecom services; courier services and defence.
The review of FDI policy is done with a view to boost investor confidence thereby stimulating FDI inflows and contributing to accelerated economic growth.
The government approved liberalisation of FDI norms in a number of sectors, including 100 percent in telecom and higher caps in insurance and defence sectors. FDI in multi-brand retail has been allowed up to 51%. The minimum foreign investment requirement is US$ 100 million, at least 50% which shall be invested in `backend infrastructure` within three years of the induction of FDI.
The FDI limit in Single Brand Retail has been enhanced to 100%. It was also decided to allow 49 percent FDI in single brand retail under the automatic route and beyond through the Foreign Investment Promotion Board (FIPB) route.
While the FDI cap in defence sector remained unchanged at 26 percent, it was decided that higher limits of foreign investments in `state-of-the-art` technology manufacturing would be considered by the Cabinet Committee on Security.
The result of the liberal foreign investment policies is that India has been consistently rated amongst the top three investment destinations globally by all international bodies including World Bank, UNCTAD. This is also mirrored in the foreign investment data. Between 1999- 2004, India received US$ 19.52 billion of foreign investment which increased to US$ 114.55 billion between 2004-09, and increased further to US$ 172.82 billion between 2009- September 2013.
FDI inflows have a positive impact by supplementing domestic capital, technology and skills of existing companies including in the aviation sector, as well as through establishment of new companies. It has indirect multiplier effect on other related sectors also, and thereby stimulates economic growth. FDI inflows also have a positive impact on the current account balance.
When it comes to the impact of FDI in retail trading towards the consumers, it is beyond doubt that they have gained a lot from organised retail on multiple counts. Studies in comparable situations have revealed that lower income consumers saved more. Farmers too have benefited significantly from the option of direct sales to organised retailers. The profit realisation for farmers selling directly to organised retailers is about 60 per cent higher than that received from selling in the mandi.
Small manufacturers will benefit from the safeguard pertaining to a minimum of 30% procurement from Indian small industries. This would provide the necessary scales for these entities to expand capacities in manufacturing, thereby creating more employment and also strengthening the manufacturing base of the country.
They will also derive the benefits of technology upgradation, which will provide a fillip to productivity and local value-addition, thereby raising the profitability and earnings of the small manufacturer. The sourcing condition will also enable the small enterprises to get integrated with global retail chains, thereby enhancing their capacity to export products from India. Small retailers would continue to be able to source high quality produce, at significantly lower prices, from wholesale cash and carry points.
The young population joining the workforce will benefit from the creation of employment opportunities, in the entire range of activities from the backend to the frontend retail business, as also from the skills imparted to them by the prospective investors.
Price stabilisation and inflation control could be achieved through direct buying from farmers, improving supply chain inefficiencies to lower transit losses, improved storage capabilities to control supply/demand imbalances, better quality and safety standards through farmer development and increased processing of produce.
FDI in retail may thus be an efficient means of addressing this issue as this would bring in large investments required for the back end infrastructure & value chain and requisite technical &management know-how.
