India to Revive FDI into Aviation, Multi-Brand Retail

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Apr. 6 – Indian Commerce Minister Anand Sharma has stated that the government decision concerning restrictions to foreign investment into the country’s multi-brand retail sector were “just a pause” and had not been scrapped.

The government had been forced into an embarrassing about-face several months ago due to mass protests and demonstrations across the country after it passed legislation to permit majority FDI ownership into the multi-brand retail sector. India has a huge mom and pop-style local corner shop society which fears brands such as Walmart and Carrefour would put small local shopkeepers out of business.

However, Sharma said that individual state-level governments would be free to decide on whether they wanted to open up the sector to foreign investors and that they have to submit their views to the Indian Congress soon.

“There are States that want it. There are States that have reservations. Let us leave it to the States that want it, and good luck to those who may not…consensus cannot be confused with unanimity, that would be a mistake,” he said.

On FDI into aviation, Sharma said that discussions had taken place with the Finance Ministry, Civil Aviation Ministry and the Commerce Ministry and that a decision could be expected soon.

The Government has proposed allowing foreign investors acquire up to 49 percent of domestic Indian airlines, yet no agreement has been reached on the makeup of this between Indian ministries. The Indian airline industry is one of the fastest growing in the world, but existing restrictions on foreign involvement and partnerships are making it hard for many to generate the financing and expertise necessary to fund development.

“The comments by the Commerce Minister are reasonable and are what can be expected. The delays caused by on-going discussions in the face of numerous differing views are a feature of doing business in the world’s largest democracy, and we should not forget this,” says Chris Devonshire-Ellis, principal of Dezan Shira & Associates. “While many are used to the more pragmatic decision making processes in China, these have also not always turned out for the best. Getting things done in India may be time-consuming and frustrating on occasion, but it remains my belief that multi-brand retail will be liberalized to permit majority FDI ownership, and that the doors will also open for FDI into the aviation sector. We will just have to be patient and, in the meantime, spend time on market research and fine tuning business plans on the basis of what is reasonably expected to happen.”

Dezan Shira & Associates is a boutique professional services firm providing foreign direct investment business advisory, tax, accounting, payroll and due diligence services for multinational clients in India. For more information, please contact india@dezshira.com, visit www.dezshira.com, or download the firm’s brochure here.

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