In 2011, the Manmohan Singh-led government has often been criticised for delayed policy decisions in attracting foreign capital into the country at a time when the rupee is falling. It is at this time that the Centre decided to allow FDI up to 51 per cent in multi-brand retail. Secondly, the government also raised FDI limit from 51 per cent to 100 per cent in single-brand retail.
While Indian law can be suitably modified by the legislature to accommodate the new decision, it is evident that it will be far from easy to do so. Eleven states have already clarified that they will not support the government decision to allow FDI in retail.
Next, lets understand how FDI approval has been governed under Indian law.
Approval of FDI as Per Indian Law
In India, foreign direct investment is governed by company law. FDI has an important role to play in ushering in foreign capital resources, technical expertise and new marketing channels in the Indian market. Like every business, it has its risks but it also brings in lucrative profits.
According to Indian law and provisions of company law, there are two ways in which FDI is approved. Firstly, the Reserve of Bank of India can sanction approval. Secondly, the Foreign Promotion Board can sanction approval. In both cases, there are strict guidelines and conditions regarding the same. India’s FDI rules have been criticized as being not very conducive or friendly towards foreign investors who are keen to invest in India.
FDI in Retail: Riders to attract serious players and Develop Back-end infrastructure
The government’s decision in November 2011 inviting large global retailers to invest in the Indian retail sector is a bold one, considering the estimated revenue of about $400 billion. To read more on FDI in Retail click here.