Increased FDI inflow a result of liberalised regime: DIPP Secy

Post the reforms introduced in the foreign direct investment (FDI) policy yesterday, India has now become the number one investment destination in the world, says Ramesh Abhishek, DIPP Secretary.

Speaking to Rituparna Bhuyan of CNBC-TV18, Abhishek said that the past two years have witnessed considerable growth in the FDI inflows which is a result of a liberalised FDI regime and shows investor confidence.

With improvement in the nation’s economy and growth rate, foreign investment is bound to increase going forward, he added.

Commenting on the FDI provisions made in the aviation and defence sector, he said that the additional capital infusion by foreign investors will help the airlines industry and removal of the state-of-art clause will make the defence sector more attractive and boost manufacturing. Below is the verbatim transcript of Ramesh Abhishek’s interview with Rituparna Bhuyan on CNBC-TV18. Q: You have opened up several sectors yesterday for foreign direct investment (FDI). Given the fact that we have seen a lot of traction on FDI inflows in Fy16, do you then believe that in FY17 we perhaps could better that kind of inflows on FDI? A: For last two years, we have seen considerable growth in FDI inflows which is the result of a very liberalised FDI regime. It shows huge investor confidence and we are also now rated as number one FDI destination in the world and with this continuing reforms and continuing improvement of our economy and growth rates, we are confident that the interest of foreign investors in our country and economy will only increase. Q: Let me take some of the final points of the FDI policy. Let me start with the single brand retail FDI policy it seems that for three year period there is relaxation and there is a relaxation for five year period also. If you can explain to us what is this three year and five year period relaxation that you are talking about for state-of-the-art technologies? A: There is a five year period during which every single brand retailer has to meet the local sourcing conditions with an average of 30 percent over five year of period. Five years are reckoned from the date of opening of the first store and April 1 of that financial year. So, this is a relaxed local sourcing requirement to suit the requirements of business. We have made this policy for all single brand retailers. So, all we have done now is that those who are certified as having state-of-the-art or cutting edge technology, they can be given up to three years of relaxation in meeting the local sourcing norms. Q: For state-of-the-art and cutting edge technology, how do you then decide that a particular product is state-of-the-art technology? Will there a mechanism be set up or will the administrative ministry decide on this particular issue? A: We had a view from the ministry of finance and we are in discussion with them to address this matter. Q: I saw some analyst reports which say that perhaps in Asia, we have the most liberal policy regarding airlines FDI policy. Now clearly the decision has been appreciated to allow 100 percent FDI in airlines but foreign airlines it has been maintained at 49 percent for. If you can explain the rationale of increasing it 100 percent for foreign investors but keeping it at 49 percent for schedule airlines? A: The change that has been made is that one can go beyond 49 percent for other foreign investors. I think that is really the crucial part. We have a very fast growing and dynamic civil aviation industry and government is focused on expanding and growing the infrastructure of the economy so that there is a strong base for a high growth rate. So, airlines being a very critical sector, we thought that additional infusion of capital possibilities by foreign investors will help the sector. Q: On defence you have said that you have taken off that state of the art technology line. We have been told by defence manufacturers that that line was a bit different for them to invest. So, what is the rationale behind now saying that we will give access to modern technology that will be the parameter or any other parameter which is put on record. So, if you can explain to us these changes that you have made to the defence FDI policy? A: The thinking is that first of all defence is a largely licensed activity. A number of important items of defence manufacturing are licensed. Secondly, those who want to set up manufacturing facilities in the country they will have to figure out how they are going to sell those manufactured goods. In defence government is perhaps the only buyer, except maybe some other export potential is there. So, whether technology is state of art or not is something that the investor should be more concerned about, because they will have to set up the manufacturing facility in the country and whether they will find a market for those goods or not it should be mainly their concern. So far as the government is concerned we want to see more defence manufacturing and the policies have been continuously streamlined and fine tuned in such a way that there is a simplicity in understanding, that is why you see that we have also mentioned that it could be for induction of modern technology or for other reasons to be recorded. Q: One other interesting approval was regarding marketing of food products. Some say that it is actually FDI in multi brand retail of food. You have also said that e-commerce activity can be allowed in that sector, if you can explain the rationale on that and do you see any backend infrastructure investments also happening because of this particular announcement? A: If you see our retail policy in FDI anyone who is allowed to have investment in FDI single brand retail or otherwise they can set up brick and mortar shop as well as they can do e-commerce. So, that is the general policy for all such retailers. So far as food produced in India and food manufacture in India is concerned the honourable Finance Minister had made this announcement in the budget and we had implemented it now. The rationale is very clear that we want the produce of India to be marketed properly and which we want to give more marketing opportunities because we know there are huge wastages in fresh food, fruits and vegetables and all that and we need to help our farmer because this sector has a huge employment potential. This will also help the consumer and by developing a supply chain as a matter of fact there will be lot of employment generation in the economy. Q: Do you expect that once FDI comes in this will also lead to more private, domestic investment cycle getting some traction because once FDI comes in then perhaps Indian domestic industries will also start investing, is that analysis of the government? A: The percent of fresh foods in our country which is processed is in single digit. Whereas it is 70-90 percent in many developed countries. We need enormous investment in infrastructure, marketing infrastructure, cold chain infrastructure, in the entire supply chain we need enormous improvement in the infrastructure and management. We have not seen that happening too much in the last few decades and FDI in this should be of a great help and that is going to help the farmers as well as consumers in a big way.