The Hindu : Front Page : Package cleared to make FDI in retail, other areas easier

Online edition of India's National Newspaper
Wednesday, Jan 25, 2006

Front Page

Front Page

Package cleared to make FDI in retail, other areas easier

Special Correspondent

Layers of approval needed by foreign investors go

New Delhi: In a major step towards deepening economic reforms, the Government has cleared a comprehensive package of measures to make foreign direct investment easier and simpler in several key areas including retail, power trading, processing and warehousing of rubber and coffee, diamond and coal mining, airports and petroleum infrastructure.

The retail sector has been opened up for the first time, with a decision to allow 51 per cent FDI but with the stipulation that this will only be for single brand shops. For instance, Sony or Nokia can open their own retail outlets instead of going through the franchisee or agent route as is being done now.

In addition, the Cabinet has decided to do away with multiple layers of approval needed by foreign investors. The need for approval by the Foreign Investment Promotion Board (FIPB) has been eliminated for airports, petroleum infrastructure and financing, wholesale and export trading as well as diamond mining. The FDI cap in all these areas has also been raised to 100 per cent.

FDI cap raised

Besides, 100 per cent FDI will be allowed in power trading and processing and warehousing in the coffee and rubber industries. The FDI caps are also being raised to 100 per cent in creation of infrastructure related to marketing in the petroleum sector and in captive mining of coal and lignite for consumption by eligible users. Similarly, FDI will be allowed up to 100 per cent for distillation and brewing of potable alcohol, industrial explosives and hazardous chemicals on the automatic route.

Briefing the media on the decisions taken by the Cabinet at a meeting here on Tuesday, Commerce and Industry Minister Kamal Nath said, "For the first time in 15 years the whole FDI policy has been reviewed in an integrated manner to remove anomalies and inconsistencies." Significantly, these wide-ranging measures to attract FDI have been taken even as Mr. Nath and Finance Minister P. Chidambaram leave on Tuesday for the annual World Economic Forum conference at Davos in Switzerland where they will make a pitch for greater investment in India.

Export cover

He said the Cabinet approved the creation of a National Export Insurance Account (NEIA) with Central Government contribution of Rs. 2,000 crore. Of this, Rs. 266 crore will be contributed in the Tenth Plan and the balance in the Eleventh Plan. He said the aim of this mechanism was to enable the Export Credit and Guarantee Corporation to provide export credit risk cover to project exports and other large value export transactions that might not otherwise get cover. It would give a boost to India's exports of projects and services, he said.

Condition lifted

Outlining other elements of the package, he said the condition of divestment of equity imposed on business-to-business e-commerce had been lifted as it was restricting FDI in these sectors. This stipulated that 26 per cent FDI would have to be divested within five years.

Secondly, the requirement of prior government approval for industrial projects located within 25 km of major towns had been dropped.

Single brand retail shops

He said the decision to allow single brand retail shops would not replace or displace existing small retailers in the country. As for the areas where FIPB clearance was no longer needed, he said FDI was being raised from 74 per cent to 100 per cent for development of new airports as well as for diamond mining.

Other sectors now on the automatic route included laying of natural gas pipelines, market studies and investment or financing in the petroleum sector and cash and carry wholesale trading and export trading.

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