Foreign companies including Ikea, which brought the first big piece of FDI
in single-brand retail, see the latest Cabinet decision as a positive. Welcoming the move, Swedish furniture major Ikea, which had committed Euro 1.5 billion investment in the country in 2012, said in a statement that the company was committed to increase local sourcing from India.
Besides single-brand retail, the Cabinet allowed 100 per cent FDI under automatic route in contract manufacturing and commercial coal mining and related processing infrastructure. Sourcing for contract manufacturing will also be counted towards total sourcing commitments.
Also, for the first time, the government has set an FDI cap at 26 per cent for digital news
media, which till now was not covered under any foreign investment rules. Digital media companies with more than 26 per cent FDI will now be required to bring down their foreign equity level.
Officials said they would start a case by case assessment of organisations that have already hit the cap.
“There’s a slowdown in the FDI situation worldwide. Even in this situation, we hope India maintains its pre-eminent position after these announcements,” Commerce and Industry Minister Piyush Goyal said while briefing the media in New Delhi after the Cabinet meeting.
Investors now want to open manufacturing centers globally, Goyal said. ‘’They are looking at India to make products for the Indian markets as well as for exports. We have till now focused on those that retail in India, but the country gets a double advantage when investors export from India.’’
As for the single-brand decision, the Department for Promotion of Industry and Internal Trade (DPIIT), the nodal body for investment-related policy, will now also count local sourcing in phases. It will be counted as an average of the total value of the goods purchased by a retailer in the first five years in a single block. After that, the sourcing norms will kick in annually.
“Single brand reforms will have a long-lasting impact in boosting market hygiene, enhancing customer satisfaction and most importantly raising mobile handset retail to international standards. Iconic stores of global standards have a symbolic value for the nation too”, said Pankaj Mohindroo, of India Cellular And Electronic Association.
For coal mining, so far 100 per cent FDI under automatic route was only allowed for captive coal production. It has now been decided to permit 100 per cent FDI for not just commercial coal mining but for associated processing infrastructure as well, including coal washery, crushing, coal handling, and separation.
“Given climate change related challenges, consumption of coal is in decline in OECD countries and even in China. Fresh investment in coal sector from global mining majors, is quite challenging going forward,” said Debashis Mishra, leader, energy, resources and industrials, Deloitte India.
“Sub-scale size of mines, challenges relating to land acquisition and getting statutory clearances, law and order challenges in coal belt will also be factors considered by large foreign players before deciding to invest in Indian coal sector,” Mishra said.