By DK Aggarwal
In a recent development, the Cabinet has made a slew of amendments to the foreign direct investment (FDI) policy for key sectors such as single brand retail trading, construction, power exchanges and aviation. After allowing 100 per cent FDI in the single brand retail category, the government has eased a rule on 30 per cent mandatory local sourcing of products for five financial years after the opening of the first Indian store.
Earlier, only 49 per cent FDI was allowed through the automatic route and government approval was required for 100 per cent FDI in retail. In 2016, the government had relaxed FDI norms in over a dozen sectors, including defence, civil aviation, construction and development, private security agencies, real estate and news broadcasting.
Undoubtedly, allowing 100 per cent FDI in single brand retail through the automatic route is a progressive step taken by the government towards attracting foreign investment and ease of doing business in India. It will facilitate easy entry of MNCs in the retail trade, and foreign entrants will find it easier to set up operations in the country.
The entry of large international retail is expected to bring in latest technologies and retail formats to India. On the customer front, this step will give Indian consumers access to several international brands. Besides, the relaxation of policy is aimed at providing a more investor-friendly climate to foreign players, which in turn will attract more FDI to boost economic growth and create jobs — the need of the hour.
To conclude, the announcement in favour of 100 per cent FDI through direct route will open up India as a global retail market. Favourable macro indicators such as improving consumer sentiment, rising disposable income, urbanisation and lower penetration of organised retail are expected to boost the Indian retail sector.
The Indian market will continue to remain attractive for retail companies around the world because of its huge (expected) consumption growth. Moreover, this step is likely to improve India's ranking in ease of doing business by allowing growth in the overall commerce of the country.