Goverment tweaks FDI rules; helps wholesalers, hurts realtors

The union government on Wednesday eased the foreign direct investment norms for sectors like wholesale cash-and-carry trading, non-banking finance companies (NBFCs) and certain segments of animal husbandry, besides simplifying some procedures.

The move is seen as benefitting wholesalers such as Bharti Wal-Mart, Carrefour and Metro Cash and Carry, which had been lobbying for removal of the restrictions. Retailers are now allowed to sell goods sourced from their foreign investment-funded wholesale ventures. The stipulation that such sales should be for internal use has been removed. Thus Bharti Retail, for instance, can sell goods sourced from Bharti-Walmart at its stores.

However, the 25 per cent limit on such sales remains, implying that bulk of the goods will have to be sourced from outside the group. This was done to preclude indirect access to foreign investment to organised retail. Foreign investment is not allowed in multi-brand, but wholesale ventures can have 100 per cent foreign direct investment.

''The change has been made in response to request for simplification of the guidelines received from stakeholders,'' the industry ministry said in reference to the rules on wholesale while releasing the consolidated policy, which will be effective from 1 October. The earlier policy put out by the industry ministry in April this year had imposed many on foreign investment funded retail, including stiff guidelines for sale to group companies.

The revised guidelines, issued through a circular on foreign direct investment, also allow the use of internal funds for investment in downstream ventures.

However, things have been made more difficult for the construction sector and tobacco sectors. The latter has been formally included in the list of activities in which FDI is prohibited. The move follows controversy around Japan Tobacco's entry into the Indian market.