Understanding the New Indian FDI Policy 2012
The government of India’s latest decision to try and liberalize the economy by allowing foreign Direct Investment of FDI has been the cynosure of all eyes in the past few weeks. Going on a liberalization and reform overdrive the government has allowed Foreign Direct investment of FDI up to 51% in multi brand retail, 49% in the aviation sector, 74% in the broadcasting and media sector while dis-investing four Public sector units (PSU’s). While knives are out from skeptics about the actual benefits of the new FDI policy, the government remains confident that the measures are not only in the best interest of the markets in the short term but would also create jobs and improve the financial health of the nation by continuous flow of foreign capital in the Indian markets across the sectors.
Economic Compulsions and Political Ramifications: There is no doubt that the government was pushed to the fall and was in danger of being the first emerging economy to be downgraded to junk by various agencies while rising inflation was crippling the common man. With the announcement of FDI revision policy, the markets received a breath of fresh air lacking for a long time owing to the green signal of foreign investment across various sectors. While the government was able to salvage its pride by announcing the FDI policy economically, it has a long way to go to fight the battle politically owing to various objections especially on allowing 51% FDI to multi brand retail which skeptics fear will lead to loss of business for small time traders and shopkeepers.
FDI Policy Announcement Highlights:
51% FDI in Multi-brand retail: which means that global retail chains like Ikea and Walmart can now sell directly to Indian customers.
49% FDI in Aviation: With the FDI limit going to 49% in aviation sector, foreign airlines are now allowed to own 49% stake in any domestic airline in the country.
Up to 74% FDI in Broadcast: Cable TV and Direct to home (DTH) service industry can now have up to 74% FDI compared to the earlier 49%.