business

India is trying to build a consensus on liberalising foreign direct investment (FDI) in retail and defence, finance minister Pranab Mukherjee today told a gathering of business leaders and policy makers in Washington. “Discussions are under way to build a consensus on further liberalisation of the FDI policy in retail and defence,” Mukherjee said. Differences exist within the Indian government on the appropriate policies for foreign direct investments in the two sectors. The commerce ministry has proposed majority FDI in defence and retail, but the defence ministry wants a maximum of 49 per cent FDI in its field. Some other ministries are opposed to the freeing up of retail and have asked foreigners to invest heavily in cold chains and retail logistics. Mukherjee will be holding talks on bilateral economic partnership with US treasury secretary Timothy Geithner from tomorrow. The US wish list includes the opening up of Indian industry and the financial sector. “We are just at the very beginning of unlocking the enormous potential of this relationship,” Geithner told the same gathering. “India is at the point now where future growth will depend on the success of the next wave of reforms,” Geithner added. Washington is keenly awaiting New Delhi’s moves on retail. The Indian government allows 51 per cent FDI in single-brand retail and 100 per cent in wholesale cash-and-carry. However, multi-brand retailers such as Walmart and Tesco are barred. An inter-ministry group on inflation under Mukherjee’s chief economic adviser Kaushik Basu has recommended the opening up of the sector. However, the government has sought time to bring on board its allies as well as the Opposition parties, who fear for the future of small retail stores. Research shows a well developed retail chain can eliminate middlemen in the food business — who pocket 60-80 per cent of the price paid by a consumer. Organised retail comprises just 4 per cent of the business. Limits on defence FDI, now at 26 per cent, have become a bone of contention between not only the defence and commerce ministries, but also between foreign investors and Indian corporate houses. Foreign aerospace firms backed by European embassies have been making a case for 74-100 per cent stake; only then can they bring proprietory technology into India, the companies said. Indian corporate houses engaged in defence such as the Tatas, Mahindra and L&T are, however, bitterly opposed to such a blanket relaxation and have instead argued in favour of relaxing FDI to 49 per cent, with Indians remaining in majority control. Assocham in a note to the government has also sought FDI cap to be kept at 49 per cent. Ficci has even said that 49 per cent FDI should be allowed as a special case.