ET NowSupriya Shrinate of ET Now spoke to Nirmala Sitharaman, Union Minister for Commerce and Industry on the new FDI norms announced by the government today.
Q: Could you talk about the benefits that will accrue owing to changes in policy on FDI?
Q: You spoke about FDI in food products. How will it impact the economy? Similarly, 100% FDI in defence is a huge step but is there a fine print? Is there a catch in terms of transfer of technology?
A: The catch is nothing but requirements of national security. We are already operating in the existing policy of FDI in defence. Under the new policy, we have to go through every application and find out if it meets all the national security requirements. We shall lay down every due diligence that has to be complied with for this policy. The new policy does not dilute this at all because defence is such an area where there is a immense potential to manufacture; at the same time the national security angle has to be kept in mind. That is something which has not been compromised with.
We understand that investment coming in for the defence sector can also immediately have an impact on creating ancillary unit hubs, which can produce a lot of jobs very quickly. These units can mushroom around many of the centres, which are waiting to develop for our country's defence needs. However, the food retail sector can also create many jobs fast enough to meet the needs of job seekers, very quickly.
Q: Let us talk especially about the aviation industry. Two announcements by the government stand out. One was about Brownfield airports and the other was about investment in scheduled airlines. Many people from the industry believe investment in airlines may not have too much impact. Why did the government take that decision? Where do you see the impact happening? Please include Brownfield airports in your answer. How do you see FDI kicking in there?
A: First off all, the decision on FDI in civil aviation is in line with and in support of the civil aviation policy announced just a week ago. So, the civil aviation policy announced earlier will gain greater traction by these FDI decisions for civil aviation. Remember in the civil aviation policy we spoke about many flight sectors in India which are lying unused and many parts of India, which are just getting connected.
Therefore, new airports have to be brought up and existing ones modernized and updated. Airline companies have to expand and connect these new routes. Such developments will require a lot of infusion of cash. Therefore, these new rules for FDI in civil aviation will support such initiatives. We are only making sure that a level playing field is provided for all airlines companies. Companies, which need greater cash infusion will have to be given that opportunity. Use of such opportunity through this policy will result in a greater open sky policy. I understand from the little research that we have done, this is going to be one of the biggest steps for boosting civil aviation and is far more industry friendly compared to rules in advanced economies than ours. This progressive FDI policy is typical of this government, where we have given you an opportunity to expand, open up, free up for giving the Indian citizen an affordable flying experience.
Q: What quantum of FDI inflows are you expecting? Let us begin sector by sector. Many people believe seeking 100% FDI in aviation is unprecedented and is a very bold move. However, how much FDI are you expecting to flow into that sector to begin with?
A: First of all, you know that India is already number one in FDI inflows. Now easing FDI acceptance norms will help gain more momentum and we shall retain our position as the top most country in receiving FDI. Now sectorally, I like to make guesses on how it is going to play up, but I guess each sector will be equally competing for investments with their own potential. For instance, take pharmaceuticals. India has already made a global impression on generic drugs. We have great potential in that area too. So, I may not be able to put a number today to all that but then yes there are opportunities waiting to materialise.
Q: I am not going to push you on a number there but I have a question on defence manufacturing and that is another very bold move to allow 100% FDI with certain government approvals. Considering that it is a sensitive sector and for years the security bogie has kept defence away from private sector and foreign investments, what sort of interest are you envisaging there? What kind of partnerships shall we witness with global investors and what would be the profile of Indian companies they shall partner with?
A: We are very conscious about defence from the point of view of national security. What we have done here is not to sideline the requirements on national security. Compliance required for national security will still have to be done. Many Indian corporates, which have shown interest in the sector will be given the necessary impetus and push. We are creating an environment where money can flow in into manufacturing in this sector because India is a very big captive audience as our armed forces are a big spender on defence procurement. Why not create an enviroment to shift sellers to our armed forces from abroad to right here in India. What we cannot buy for the country's needs can be exported.
Q: Was the government’s hand forced for allowing 100% FDI in defence? Was this the message that you got when you sought defence partnerships under the Make in India programme that unless the foreign players have full control, they would not come down and manufacture in India. Has this resulted in unfair competition for Indian companies who may not be able to match up to the global biggies who will come in now?
A: No, we shall definitely want to bring in a level playing field. It is not as if the conditions were laid towards saying unless you do this we are not going to come in. However, we should understand that if there is technology coming in along with investment the foreign player may not want 51 per cent holding in Indian hands. We are very clear that by keeping the national security requirement in place, modern technologies will be sought and there is clarity in the policy for this issue. With modern technology coming in, we think in defence sector India’s manufacturing capability will be fully used. We do not want to undermine that potential and therefore we have made this relaxation.
Q: Technology transfer used to be a critical component of agreements under the erstwhile policy for defence. However, now that we are welcoming 100 per cent FDI in defence, will the foreign companies who will set up shop continue to hold the rights to such technology as they will manufacture in India?
A: You will have greater clarity on specifics such as this because what the policy now says is 49% to automatic route, the next 49% up to a 100 will be going through certain approval requirements and the details of which will certainly be given out when the policy is elaborated in terms of the rules, which will govern them. So wait a few days more for greater clarity.
Q: Single brand retailers were requesting you for months to ease local sourcing norms. Please speak on this development as retailers across the board would want to know on this one.
A: The local sourcing norms have not been completely thrown out of the window. We have said that for such goods, they can have a three year window during which they can set up sourcing norms and then comply with local sourcing norms in the fourth year onwards. Therefore, we have not completely done away with the local sourcing requirements but only given the first three years as time to comply.
Q: So does Apple need to reapply for a nod?
A: Well, the norms have been expounded now. I guess, yes, it will mean that they can always approach us again. The policy is not for any one particular company but for whoever wishes to apply. Whoever wishes to contact us again on this, can approach the government.
Q: Is this going to be backed with ease of doing business?
A: Doing business is an ongoing activity. In our first year we had identified 98 critical things on which states cooperated with us and they removed the hurdles on those identified 98 categories. This year, we have come up with about 340 which all of them are happy to comply with so the ease of doing business is not something, which is a concluded exercise. We shall be working on it. Ease of doing business is of high priority. Make In India initiative really depends on ease of doing business and that will continue. This policy on FDI that we have come up with is to continue the exercise, which we started in November 2015 keeping in mind the Make in India and ease of doing business as the priority for this government. We want to make India a manufacturing hub.
Q: Looks like your government has been able to do a lot of damage control with this announcement. Was Raghuram Rajan’s exit and the damage it would have caused one of the reasons why you decided to announce this path breaking policy decisions today?
A: I have answered this before but I will certainly say it again. These things do not happen overnight. They cannot be decided overnights as they area major initiatives for the nation. Nothing can happen within 24-hours. These are things on which we have been working for the last few months. Once natural logical conclusion was reached, we have announced the policy. It so happens, that day is today.
Q: Could you talk about the benefits that will accrue owing to changes in policy on FDI?
A: Funds from abroad infused in retailing had been announced in the annual budget. This sector can immediately translate into a lot of jobs. For instance, related areas such as private security services provided to the retail industry itself is cause of a lot of jobs and social mobility. You will notice that each sector has its own time line for converting investments into social benefits, maturing of projects and creation of jobs. Therefore, it may not be possible for me to comment on what investments are going to take place in various sectors and how many jobs will be created and when. That vision is not possible at this moment. Each sector is going to develop in a different manner.
Q: You spoke about FDI in food products. How will it impact the economy? Similarly, 100% FDI in defence is a huge step but is there a fine print? Is there a catch in terms of transfer of technology?
A: The catch is nothing but requirements of national security. We are already operating in the existing policy of FDI in defence. Under the new policy, we have to go through every application and find out if it meets all the national security requirements. We shall lay down every due diligence that has to be complied with for this policy. The new policy does not dilute this at all because defence is such an area where there is a immense potential to manufacture; at the same time the national security angle has to be kept in mind. That is something which has not been compromised with.
We understand that investment coming in for the defence sector can also immediately have an impact on creating ancillary unit hubs, which can produce a lot of jobs very quickly. These units can mushroom around many of the centres, which are waiting to develop for our country's defence needs. However, the food retail sector can also create many jobs fast enough to meet the needs of job seekers, very quickly.
Q: Let us talk especially about the aviation industry. Two announcements by the government stand out. One was about Brownfield airports and the other was about investment in scheduled airlines. Many people from the industry believe investment in airlines may not have too much impact. Why did the government take that decision? Where do you see the impact happening? Please include Brownfield airports in your answer. How do you see FDI kicking in there?
A: First off all, the decision on FDI in civil aviation is in line with and in support of the civil aviation policy announced just a week ago. So, the civil aviation policy announced earlier will gain greater traction by these FDI decisions for civil aviation. Remember in the civil aviation policy we spoke about many flight sectors in India which are lying unused and many parts of India, which are just getting connected.
Therefore, new airports have to be brought up and existing ones modernized and updated. Airline companies have to expand and connect these new routes. Such developments will require a lot of infusion of cash. Therefore, these new rules for FDI in civil aviation will support such initiatives. We are only making sure that a level playing field is provided for all airlines companies. Companies, which need greater cash infusion will have to be given that opportunity. Use of such opportunity through this policy will result in a greater open sky policy. I understand from the little research that we have done, this is going to be one of the biggest steps for boosting civil aviation and is far more industry friendly compared to rules in advanced economies than ours. This progressive FDI policy is typical of this government, where we have given you an opportunity to expand, open up, free up for giving the Indian citizen an affordable flying experience.
Q: What quantum of FDI inflows are you expecting? Let us begin sector by sector. Many people believe seeking 100% FDI in aviation is unprecedented and is a very bold move. However, how much FDI are you expecting to flow into that sector to begin with?
A: First of all, you know that India is already number one in FDI inflows. Now easing FDI acceptance norms will help gain more momentum and we shall retain our position as the top most country in receiving FDI. Now sectorally, I like to make guesses on how it is going to play up, but I guess each sector will be equally competing for investments with their own potential. For instance, take pharmaceuticals. India has already made a global impression on generic drugs. We have great potential in that area too. So, I may not be able to put a number today to all that but then yes there are opportunities waiting to materialise.
Q: I am not going to push you on a number there but I have a question on defence manufacturing and that is another very bold move to allow 100% FDI with certain government approvals. Considering that it is a sensitive sector and for years the security bogie has kept defence away from private sector and foreign investments, what sort of interest are you envisaging there? What kind of partnerships shall we witness with global investors and what would be the profile of Indian companies they shall partner with?
A: We are very conscious about defence from the point of view of national security. What we have done here is not to sideline the requirements on national security. Compliance required for national security will still have to be done. Many Indian corporates, which have shown interest in the sector will be given the necessary impetus and push. We are creating an environment where money can flow in into manufacturing in this sector because India is a very big captive audience as our armed forces are a big spender on defence procurement. Why not create an enviroment to shift sellers to our armed forces from abroad to right here in India. What we cannot buy for the country's needs can be exported.
Q: Was the government’s hand forced for allowing 100% FDI in defence? Was this the message that you got when you sought defence partnerships under the Make in India programme that unless the foreign players have full control, they would not come down and manufacture in India. Has this resulted in unfair competition for Indian companies who may not be able to match up to the global biggies who will come in now?
A: No, we shall definitely want to bring in a level playing field. It is not as if the conditions were laid towards saying unless you do this we are not going to come in. However, we should understand that if there is technology coming in along with investment the foreign player may not want 51 per cent holding in Indian hands. We are very clear that by keeping the national security requirement in place, modern technologies will be sought and there is clarity in the policy for this issue. With modern technology coming in, we think in defence sector India’s manufacturing capability will be fully used. We do not want to undermine that potential and therefore we have made this relaxation.
Q: Technology transfer used to be a critical component of agreements under the erstwhile policy for defence. However, now that we are welcoming 100 per cent FDI in defence, will the foreign companies who will set up shop continue to hold the rights to such technology as they will manufacture in India?
A: You will have greater clarity on specifics such as this because what the policy now says is 49% to automatic route, the next 49% up to a 100 will be going through certain approval requirements and the details of which will certainly be given out when the policy is elaborated in terms of the rules, which will govern them. So wait a few days more for greater clarity.
Q: Single brand retailers were requesting you for months to ease local sourcing norms. Please speak on this development as retailers across the board would want to know on this one.
A: The local sourcing norms have not been completely thrown out of the window. We have said that for such goods, they can have a three year window during which they can set up sourcing norms and then comply with local sourcing norms in the fourth year onwards. Therefore, we have not completely done away with the local sourcing requirements but only given the first three years as time to comply.
Q: So does Apple need to reapply for a nod?
A: Well, the norms have been expounded now. I guess, yes, it will mean that they can always approach us again. The policy is not for any one particular company but for whoever wishes to apply. Whoever wishes to contact us again on this, can approach the government.
Q: Is this going to be backed with ease of doing business?
A: Doing business is an ongoing activity. In our first year we had identified 98 critical things on which states cooperated with us and they removed the hurdles on those identified 98 categories. This year, we have come up with about 340 which all of them are happy to comply with so the ease of doing business is not something, which is a concluded exercise. We shall be working on it. Ease of doing business is of high priority. Make In India initiative really depends on ease of doing business and that will continue. This policy on FDI that we have come up with is to continue the exercise, which we started in November 2015 keeping in mind the Make in India and ease of doing business as the priority for this government. We want to make India a manufacturing hub.
Q: Looks like your government has been able to do a lot of damage control with this announcement. Was Raghuram Rajan’s exit and the damage it would have caused one of the reasons why you decided to announce this path breaking policy decisions today?
A: I have answered this before but I will certainly say it again. These things do not happen overnight. They cannot be decided overnights as they area major initiatives for the nation. Nothing can happen within 24-hours. These are things on which we have been working for the last few months. Once natural logical conclusion was reached, we have announced the policy. It so happens, that day is today.
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...moreDownload The Economic Times News App to get Daily Market Updates & Live Business News.
Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.
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