Indian govt relaxes FDI rules in retail and aviation to fuel economic growth

Friday, 14 September 2012 - 11:18pm India News Bulletin Desk

A retail mall in Mumbai city

Image: Wikimedia Commons (Trinidade)

In its bid to push reforms and fuel India’s economic growth trajectory, the government has finally approved 51% FDI (foreign direct investment) in multi-brand retail and 49% in the aviation sector. It has taken other measures such as disinvestment in four PSUs to further push growth.

“The Cabinet has taken many decisions today to bolster economic growth and make India a more attractive destination for foreign investment,” Prime Minister Manmohan Singh said.

“These steps will help strengthen our growth process and generate employment in these difficult times,” he added.

The approval of FDI in retail means foreign retail giants including UK’s largest retailer Tesco as well as global retailers such as Walmart and Carrefour will be able to enter India. Several foreign retailers such as Ikea, Tesco and PizzaExpress have shown their interest to break into the Indian market but were unable to because of the stringent FDI rules hitherto.

But, the central government has left it to the state governments to decide whether to allow such retail shops to operate or not. It has also tweaked the regulations in FDIs for single brand retail requiring foreign retailers investing more than 50% to set up manufacturing facilities in the Indian regions.

The Cabinet had previously approved 51% FDI in retail in November 2011 but it was put on hold because of the opposition it faced including those from its own Trinamool Congress party. The approval came after a Cabinet meeting on Friday, September 14.

The approval of 49% FDI in the aviation sector also means that foreign airlines will be able to bid for Indian airline companies throwing a lifeline to several ailing Indian airline companies such as Kingfisher Airlines.

Although FDI in the aviation sector existed previously, foreign airlines were not allowed to buy stakes. That will now change providing a huge sigh of relief to the ailing aviation sector.

The Cabinet also allowed foreign investment up to 49% including 26% FDI and 23% FII in power Trading Exchanges btu added that the investment must be compliant with SEBI (trading watchdog) regulations.

Among other measures, the government announced disinvestment in four PSUs (Public Sector Units) which may bring 15,000-crore rupees to the government. The government will disinvest nearly 10% equity in Hindustan Copper Ltd, 12.15% in National Aluminium company Ltd (Nalco), 10% in Oil India Ltd and 9.33% in MMTC Ltd.

The decision to approve FDI follows the government’s decision to increase fuel tariffs sharply. Diesel prices in India were hiked by 14% a day ago.

“I urge all segments of public opinion to support the steps we have taken in national interest,” Prime Minsiter Singh added.

NEW UPDATE: OCTOBER 4, 2012:

The Indian government approves more reforms by allowing 49% foreign investment in insurance companies and opening up the pension sector for investment too.