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Gov’t opens multi-brand retail, aviation to FDI

After November 2011’s false start in liberalising multi-brand retail, the Manmohan Singh-led government has decided to allow foreign direct investment (FDI) in the multi-brand retail sector and the aviation industry.

Foreigners will be able to invest 51 per cent in multi-brand retail outlets, such as supermarkets, and foreign airlines up to 49 per cent in Indian airlines, reported Mint and Reuters.

The Business Standard featured industry reactions welcoming the news, while an Indian traders’ confederation condemned it.

Individual states will be able to decide on whether to implement the retail FDI relaxation.

The move the likely resulting investment activity would prove a boon to Indian and international law firms specialising in FDI and M&A.

Mint wrote:

The cabinet had approved FDI in multi-brand retail in November, but had to put the move on hold because of the hostility toward the policy from allies such as Trinamool Congress and opposition parties. The government has already allowed 100% FDI in single-brand retail.

The latest move is expected to attract investments by supermarket giants such as Walmart, Tesco, Carrefour and others that have been waiting for India to open the doors for foreigners in multi-brand retail. The $450 billion retail industry is currently dominated by small family-run shops, with organized retail comprising about 10% of the market.

According to the proposal cleared by the cabinet, foreign retailers have to make a minimum investment of $100 million in back-end infrastructure and source 30% of inputs from local small enterprises.

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