Freeing up FDI
The govt’s move to ease FDI rules for single-brand retail, real estate brokerage and aviation are welcome decisions, but a note of caution is still warranted
The National Democratic Alliance (NDA) has amended foreign direct investment (FDI) rules for the fourth time in three years to liberalize the investment regime for single-brand retail, real estate brokerage, aviation and power exchanges. These are welcome decisions. But a note of caution is still warranted.
The 30% local sourcing rules in single-brand retail continue to be a deterrent for investors, especially in industries in which India doesn’t already have evolved manufacturers. The relaxation for companies with “state-of-the-art” or “cutting edge” products is unclear at present because of confusion about what these terms mean.
Single-brand retail has been open to 100% FDI since 2011; the main draw for investors will be multi-brand retail—this has been pending due to a fear of retaliation from kirana store owners.
By allowing 49% FDI in Air India, the government will likely get more bidders and hence a better valuation. But it should clarify, like in the Maruti Suzuki case, that it will not interfere in the management after the disinvestment.
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