100% FDI in export trading via automatic route soon

NEW DELHI: Even as the government is planning to open up retail trading selectively for foreign direct investment (FDI), steps have been initiated to gradually liberalise the flow of foreign investment in export trading and wholesale trading.

According to government sources, 100% FDI in export trading would be allowed soon through the automatic route. Till now, clearance of the Foreign Investment Promotion Board (FIPB) is required for investing in 100% subsidiaries meant for export trading.

Economic affairs secretary Rakesh Mohan, who heads FIPB, has proposed liberalisation of this segment, sources said. Once 100% FDI in export trading is put on the automatic route, foreign companies seeking to set up subsidiaries exclusively for exports need not seek permission from FIPB.

Liberalisation would be brought about by placing ‘trading activity’ under the automatic route. As a safeguard, the clearance would be made subject to standard trading conditions which include a bar on retail trade.

The other area of liberalisation proposed by the FIPB chief is scrapping the need to seek permission for investing in wholesale trading. This segment should also be put on the automatic route, Mr Mohan said. During recent meetings of the board, the FIPB chief discussed the issued with other members.

The commerce department and other ministries do not have any major reservation over the liberalisation, said sources. Shifting these segments to the automatic route would cut red tap and make investments much easier.

The Reserve Bank handles FDI in segments which are classified under the automatic route. The government permits FDI in trading, subject to ‘standard’ conditions which include bar on retail trading.

Permission is granted, for example, for cash & carry trading or wholesale trading on a case-to-case basis since such clearances still require permission from FIPB. Bulk imports for the purpose of export and sale through bonded warehouses is also allowed.

Commerce & industry minister Kamal Nath is currently considering selective liberalisation of FDI in the retail sector, starting with permission for ‘single-brand’ stores.

For example, a multinational company may be allowed to set up a subsidiary or joint venture to establish exclusive showrooms for selling its products. Even now, such exclusive retail trading exists and the only difference is that it is operated through franchise agreements.