 "'No taboo in Brownfield back-end investments in multibrand retail FDI'")
Clearing the air on the government’s position in some of the conditions in allowing foreign direct investment (FDI) in multibrand and singlebrand retail, minister of commerce, industry and textiles Anand Sharma tells Nayanima Basu that there is no restriction in global retailers acquiring existing back-end infrastructure. Sharma also says sourcing norms will not be uniform for singlebrand or multibrand retailers. Excerpts:
What is exactly the government’s position in FDI policy on multibrand retail concerning investment in back-end infrastructure?
We have no issues in an investor coming in and looking also at what is existing. But when it comes to 50% in back-end infrastructure that is an additionality and that is in the first tranche that comes in. After that if they bring in more investments then every time they cannot create same infrastructure because infrastructure will be need based then. There is no taboo on picking up Brownfield but the objective of the policy is investment in creating Greenfield back-end infrastructure. And this will not include land but what they have to construct, only that component.
For multibrand it is different because many of them are in fresh foods so only the ‘processed or manufactured’ component is there when it comes to sourcing which is a small content of the overall trade. So it is not 30% of all, it is 30% component only of what is made in SMEs or food and agro-processing industries. But when it comes to their buying, they can make their own business arrangements directly with the farmers, cooperatives that we are not concerned. For singlebrand, they do not have the food component so for them it is different and will be so.
But there was some ambiguity on the issue concerning IKEA?
IKEA is past. Their issues have been answered and there is absolute clarity on that. IKEA has a global model. Singlebrand means that it has to be global model. They will have to replicate the same model everywhere and cannot have country-specific models. And their cafes are not retailing in food so it is different from food retailing. They are not food retailers but a furniture giant.
What exactly is the government doing in raising FDI in defence, be it 49% or 74%? Why is there a dichotomy between the ministries of commerce and industry and defence?
Recently I have again taken it up with the defence minister. I have written to him again for a meeting and discussion. We can make presentations to them on what we have in mind. Indian private sector and major global defence players have expressed interest to enter into technological collaboration and partnerships. Many of these technologies have multiple applications. We are looking at the spin-offs for other sectors also. It will also reduce our dependence on imports. We have allowed our Indian private sectors to enter into partnerships with major defence equipment manufactures of the world, be it the TATAs or Mahindras or L&T. Raising the cap will benefit defence PSUs also.
There is no question of dichotomy here. Defence is a sensitive sector. We have allowed 26% FDI and now we are looking at increasing it to 49% which will be a meaningful move. I am convinced that this is the way forward.
Moving on, what will be your stance in the event the European Union (EU) finally refuses to grant ‘Data Secure’ status to India during the upcoming ministers meet in June because it is a legislative decision?
I would like to wait for the outcome of the chief negotiators meeting (on May 15). They have a very clear mandate. What we have on the table is fairly substantial. We are very clear that India has very serious interest in services trade and also India to be accepted as ‘Data Secure’ country. I am clear that they have to give the status to India.
Next week new Chinese Premier Li Keqiang is visiting India for the first time. Will the government raise the issue of trade imbalance with the new leadership?
I do not think that is on the agenda. India and China are as such engaged in strategic and economic partnership. China is our major trading partner but investment are on a low side but we do hope that there will be more technical collaborations particularly in India’s manufacturing sector. There is big imbalance in the bilateral trade and those are issue of market access, particularly, in pharma and IT sectors.
You said India wants more Chinese investments to come in, yet they are subjected to some major scrutiny in some sectors. Do you plan to address this issue?
I do not think there is any China specific scrutiny which happens in India. There is no bar when it comes to manufacturing, infrastructure and engineering. In some sectors where scrutiny is done will be done, irrespective of which country it is coming from. Those are security requirements due to sensitivity of the sectors so there is no harm. But that is not a barrier.
With the change of government in Pakistan, do you think the same commitment on granting MFN status to India will remain a priority?
We have taken steps when it comes to opening up of more tariff lines. Pakistan had assured that they will grant MFN status to India by December last year. I hope that will happen now given the positive statement that has come from them who in the past has also expressed commitment to the process of economic engagement. It is unfortunate that there had been instances which have cast a shadow. I hope now the democratically elected government there makes it clear that they will not allow the agenda of those who believe in confrontation and violence.
What is exactly the government’s position in FDI policy on multibrand retail concerning investment in back-end infrastructure?
We have no issues in an investor coming in and looking also at what is existing. But when it comes to 50% in back-end infrastructure that is an additionality and that is in the first tranche that comes in. After that if they bring in more investments then every time they cannot create same infrastructure because infrastructure will be need based then. There is no taboo on picking up Brownfield but the objective of the policy is investment in creating Greenfield back-end infrastructure. And this will not include land but what they have to construct, only that component.
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Also, concerning the sourcing condition in both multibrand and singlebrand retail FDI, will there be any uniformity as what some of the leading global retailers had been asking?
For multibrand it is different because many of them are in fresh foods so only the ‘processed or manufactured’ component is there when it comes to sourcing which is a small content of the overall trade. So it is not 30% of all, it is 30% component only of what is made in SMEs or food and agro-processing industries. But when it comes to their buying, they can make their own business arrangements directly with the farmers, cooperatives that we are not concerned. For singlebrand, they do not have the food component so for them it is different and will be so.
But there was some ambiguity on the issue concerning IKEA?
IKEA is past. Their issues have been answered and there is absolute clarity on that. IKEA has a global model. Singlebrand means that it has to be global model. They will have to replicate the same model everywhere and cannot have country-specific models. And their cafes are not retailing in food so it is different from food retailing. They are not food retailers but a furniture giant.
What exactly is the government doing in raising FDI in defence, be it 49% or 74%? Why is there a dichotomy between the ministries of commerce and industry and defence?
Recently I have again taken it up with the defence minister. I have written to him again for a meeting and discussion. We can make presentations to them on what we have in mind. Indian private sector and major global defence players have expressed interest to enter into technological collaboration and partnerships. Many of these technologies have multiple applications. We are looking at the spin-offs for other sectors also. It will also reduce our dependence on imports. We have allowed our Indian private sectors to enter into partnerships with major defence equipment manufactures of the world, be it the TATAs or Mahindras or L&T. Raising the cap will benefit defence PSUs also.
There is no question of dichotomy here. Defence is a sensitive sector. We have allowed 26% FDI and now we are looking at increasing it to 49% which will be a meaningful move. I am convinced that this is the way forward.
Moving on, what will be your stance in the event the European Union (EU) finally refuses to grant ‘Data Secure’ status to India during the upcoming ministers meet in June because it is a legislative decision?
I would like to wait for the outcome of the chief negotiators meeting (on May 15). They have a very clear mandate. What we have on the table is fairly substantial. We are very clear that India has very serious interest in services trade and also India to be accepted as ‘Data Secure’ country. I am clear that they have to give the status to India.
Next week new Chinese Premier Li Keqiang is visiting India for the first time. Will the government raise the issue of trade imbalance with the new leadership?
I do not think that is on the agenda. India and China are as such engaged in strategic and economic partnership. China is our major trading partner but investment are on a low side but we do hope that there will be more technical collaborations particularly in India’s manufacturing sector. There is big imbalance in the bilateral trade and those are issue of market access, particularly, in pharma and IT sectors.
You said India wants more Chinese investments to come in, yet they are subjected to some major scrutiny in some sectors. Do you plan to address this issue?
I do not think there is any China specific scrutiny which happens in India. There is no bar when it comes to manufacturing, infrastructure and engineering. In some sectors where scrutiny is done will be done, irrespective of which country it is coming from. Those are security requirements due to sensitivity of the sectors so there is no harm. But that is not a barrier.
With the change of government in Pakistan, do you think the same commitment on granting MFN status to India will remain a priority?
We have taken steps when it comes to opening up of more tariff lines. Pakistan had assured that they will grant MFN status to India by December last year. I hope that will happen now given the positive statement that has come from them who in the past has also expressed commitment to the process of economic engagement. It is unfortunate that there had been instances which have cast a shadow. I hope now the democratically elected government there makes it clear that they will not allow the agenda of those who believe in confrontation and violence.