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Sep 17, 2012 09:32 AM IST | Source:

Govt stays firm on FDI despite political fury

The government's big ticket reforms, FDI in aviation and FDI in retail, have left allies furious. Trinamool Congress chief and West Bengal Chief Minister Mamata Banerjee has given the UPA a 72-hour deadline to roll back retail FDI and fuel price hike but Commerce Minister Anand Sharma has made it clear that there will be no turning back.

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The government's big ticket reforms, FDI in aviation and FDI in retail, have left allies furious. Trinamool Congress chief and West Bengal Chief Minister Mamata Banerjee has given the UPA a 72-hour deadline to roll back retail FDI and fuel price hike but Commerce Minister Anand Sharma has made it clear that there will be no turning back.

Talking to CNBC-TV18, Anand Sharma said last year's decision to allow FDI in multi-brand retail was put off, only to bring all stakeholders on board. "This is a well considered decisions, not taken in last 24 hours. The states who don't want FDI will not be forced," he said.

Also Read: FDI in multi-brand retail, aviation, 4 PSU sell-offs okayed

While many states including Kerala, West Bengal and Uttar Pradesh continued to oppose FDI in retail, Sharma claimed that most of the states were on board on the reforms. "Gujarat has communicated nothing to us on FDI," he said.

Congress General Secretary Digvijaya Singh also tweeted, "Another example of double speak of BJP who wanted 100% FDI in multi-brand retail during the NDA and now opposing it."

Earlier on Friday, while announcing the reforms, Anand Sharma said, "The UPA government built consensus, but some states such as Bihar and West Bengal had reservations."

At the Cabinet meeting, Prime Minister Manmohan Singh also said, "The time for big bang reforms has come. If we have to go down, we have to go down fighting."

The UPA government left the country surprised pushing long-pending big bang reforms on Friday evening. Just like Manmohan Singh had put the survival of his government at stake over the Indo-US nuclear deal in UPA-I, he once again stood firmly to push bold economic reforms.

At the meeting of the Cabinet Committee on Economic Affairs (CCEA), the government on Friday cleared foreign direct investment (FDI) in multi-brand retail, single-brand retail, aviation, broadcasting and power exchanges.

In multi-brand retail, an issue that has been troubling the government for quite some time, the Cabinet decided to allow 51% foreign direct investment. However, unlike the last time, the government has let individual states decide whether to allow it or not.

There is an opt-out clause in the FDI in multi-brand retail, which says, "Retail sales outlets maybe set up in those states which have agreed or agree in the future to allow FDI in multi-brand retail under this policy. This is an enabling clause. This means that no FDI in retail will be allowed in any state unless the state explicitly agrees to come on board and agree to the policy."

The Cabinet also approved the proposal of the Department of Industrial Policy and Promotion for amendment of the existing policy on FDI in single-brand product retail trading. The government permitted FDI, up to 100%, in single brand product retail trading, subject to specified conditions.

Relaxing the norm in single-brand retail where FDI is above 51%, the government said that while 30% of the sourcing would have to be done from Indian companies, they may not be from medium and small scale, village or cottage industry. However, it said that it should preferably be done from them.

Notably, it was earlier mandatory in case of FDI over 51% that 30% sourcing should be done from small and medium scale, village and cottage industry.


In another major decision, the government approved FDI in aviation, allowing up to 49% investment. The decision means that foreign airlines will now be allowed to invest as much as 49% in the Indian carriers. However, this won’t be automatic as the companies will have to get clearance from the ministry and FIPB.

Also, according to 1937 aircraft rules, as many as three-fourth of the directors need to be Indian and the Chairman also has to be Indian. India has to hold substantial amount of investment in that airline.

The government, in a move to liberalise the broadcast sector, decided to raise FDI cap to 74% in various services of the sector, except the TV news channels and FM radio where the cap of 26% would apply.

The decision of the CCEA will apply to broadcast carriage services providers, including Direct-to-Home, Head-end in the Sky (HITS), Multi-Service Operators (MSOs) and cable TV to bring about uniformity.

Till now, 49% FDI was allowed in cable TV and DTH while it is 74% in HITS, which is a satellite multiplex service that provides TV channels for cable operations.

Among other segments, 74% FDI was allowed in Mobile TV, which is an area of future growth. However, for TV news channels, current affairs, FM radio and content providers, the FDI limit will stay at 26%.

India is estimated to have about 106 million households with cable and satellite TVs in India, of which 26 million use DTH and 80 million get feed from the cable network.

In another important decision, the government approved the disinvestment of five Public Sector Units (PSUs), including Oil India (10%), Nalco (12.5%) and Hindustan Copper (9.59%).

Even as the industry is hailing the government's decision, the big bang reforms have come under fire from the Opposition as well as the allies.

Mamata Banerjee called it a 'loot' and gave a three-day deadline to the government to roll back not just the retail FDI decision, but also the diesel price hike.

TMC spokesperson Kunal Ghosh said, "We strongly oppose the move. we demand that the government should review this decision or we will protest."

Union Railways Minister and TMC MP Mukul Roy said, "We are opposed to FDI in retail. We will discuss on the future course of action."

But even as the Trinamool Congress is threatening to take strong decisions, it has not given clear answers on whether it will withdraw from the UPA. "How can I comment now, because our meeting is on Tuesday. Mamata is ready to take any strong decision if the UPA doesn't hear us," Kunal Ghosh said.

The Bharatiya Janata Party (BJP), meanwhile, condemned the move accusing the Manmohan Singh government of succumbing to "foreign pressure". BJP spokesperson Ravi Shankar Prasad said that the decision of the government would harm at least five crore people across the country.

Gujarat Chief Minister Narendra Modi said that the decision on retail FDI will affect the domestic manufacturing and lead to job losses.

"I don't know what the Prime Minister is doing. Smalltime shopkeepers will have to close down due to this decision," Modi said, reacting to the decision on FDI, during his campaign tour through the area.

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