India May Soon Liberalize FDI in E-commerce, Railways and Construction
Jan 6. – After foreign direct investments (FDI) into India slowed considerably in the April-November period of the current fiscal year, Prime Minister Manmohan Singh pledged India would push through further reforms to ensure a “hospitable” environment for FDI.
“India provides a hospitable environment for FDI, we will continue to do so. We will continue to improve our practices wherever they are needed,” PM Singh told a press conference last Friday after new figures showed FDI into the country declined to US$2.6 billion from $14.7 billion in the same period a year earlier.
In response, the Department of Industrial Policy and Promotion (DIPP) has begun conversations with stakeholders on allowing FDI in retail e-commerce by the end of this financial year.
Distributing discussion papers to stakeholders earlier this month, the PM’s cabinet will begin formulating a decision on the issue sometime after feedback is returned on January 28.
According to DIPP officials, the biggest issue is whether to only liberalize e-commerce FDI in goods, or to include services as well. Currently, 100 percent FDI is permitted only in business-to-business (B2B) e-commerce, while FDI in business-to-consumer (B2C) e-commerce remains strictly prohibited.
“Once we get all the feedback, we will circulate the Cabinet note to all ministries for inter-ministerial discussion. It should therefore be before March,” the official said.
Other sources have also suggested that the government will soon allow FDI in high-speed rail and other construction projects in early 2014.
“The commerce and industry ministry has sent the Cabinet a note on the matter and a decision is likely to be taken this month,” a government official said on the issue.
While DIPP will de-license and de-reserve a few areas while liberalizing FDI in the railway sector, train operations and safety will remain off-limits for non-domestic companies. According to sources, FDI would be allowed in the “sub-urban corridor, high-speed train systems and dedicated freight line projects implemented in PPP (public private partnership) mode.” The definition of ‘infrastructure’ is also expected to be widened by including railway lines and railway sidings.
Investment in cash-strapped Indian railways is badly needed to connect sea ports and mining facilities currently seeking increased FDI for development and infrastructure purposes.
While FDI was down overall in the previous period, pharmaceutical sector FDI jumped by 86.5 percent to US$1.08 billion during April-October. Although the DIPP had proposed tightening FDI restrictions on the pharmaceutical sector last year, the Union Cabinet ultimately rejected the proposal.
Last year, the Indian government liberalized FDI caps in a number of key sectors including telecom, asset reconstruction and credit information. These changes inspired a number of proposals from firms seeking to increase investment in the country.
Towards the end of 2013, the finance ministry approved a landmark proposal from the UK-based firm Tesco to invest US$110 million in the opening up of multi-brand retail stores in the country through a partnership with Tata Group firm Trent. According to Tesco, the amount “could be scaled up later depending on how operations expand in the initial three to four years.”
British telecom group Vodafone’s request to invest US$1.6 billion and take full ownership of its India business is currently still under deliberation by the Cabinet.
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