Govt allows FDI in retail, aviation

Ending months of perceived policy paralysis, the government yesterday finally allowed 51 per cent foreign direct investment (FDI) in multi-brand retail - and also opened up the aviation sector - triggering expected outrage among some of its allies as well as the opposition.

People friendly? The decision could potentially be a game-changer for the country's retail market, which is dominated by neighbourhood stores

The government clarified that states, which did not favour 51 per cent FDI in multi-brand retail were free to not implement the policy.

This effectively means that states ruled by Congress governments can implement the decision while states ruled by non-Congress parties or the central government's allies will not have to implement it.

The government also approved FDI in aviation and gave its nod for disinvestment in four PSUs, part of a package of reformist measures, which are widely seen as aimed at shoring up the faltering economy and the international standing of India that has taken a severe beating in recent months.

While industry bodies welcomed the move, ally TMC joined the angry chorus of the BJP and the Left to denounce the move, which the government insisted would not hurt India's national interests. BJP and Communist leaders called the decision a "betrayal" of the people's interests.u00a0West Bengal Chief Minister and Trinamool Congress leader Mamata Banerjee was furious and said she would not stand for it.

As criticism mounted, Commerce Minister Anand Sharma defended the sweeping policy changes, viewed as a major step to spur economic reforms.u00a0"It is not a sudden decision," Sharma told the media, explaining the decisions taken yesterday evening by the Cabinet Committee on Economic Affairs chaired by Prime Minister Manmohan Singh.

The cabinet also decided that overseas retailers setting up a single brand store in India must source at least 30 per cent of their goods from Indian companies, preferably from micro, small and medium enterprises (MSMEs). Earlier it was mandatory for the overseas firms to source 30 per cent of the goods from MSME.

The minister said the decision was first taken last November but subsequently held back following opposition mainly from the Left, BJP and the TMC.u00a0But it was "never rolled back", Sharma clarified.

He said since then the government had held intense discussions with various stakeholders with a view to creating broad consensus. "Ten months is not a sudden decision." He said among those who were spoken to were farmers associations, civil society groups, regional chambers of commerce and industry as well as state governments.

According to the government, the move comes with some conditions for the investors.u00a0Hailing the step, the Federation of Chambers of Commerce and Industry (FICCI) said it reflected the resolve of the government to usher in a retail revolution in the country and signalled to the investor community that India is committed to furthering reforms.