Earlier this month, the government announced relaxation of FDI norms in 15 sectors including real estate, defence, aviation and retail as part of reforms to spur economic growth. In a conversation with The Dollar Business, Nirmala Sitharaman, Minister of State for Commerce and Industry, reasons how these reforms will help in propelling the Indian economy forward.

Interview by Neha Dewan | December 2015 Issue | The Dollar Business

TDB: The central government has recently announced a slew of relaxations in foreign direct investment (FDI) norms across sectors. How soon can we see the impact of these changes on the Indian economy?

Nirmala Sitharaman (NS): As far as FDI policy is concerned, it is an ongoing process. We keep reviewing the situation – by organising stakeholders’ meetings, taking their inputs and then announcing a policy change, if any. Only a few months ago we came up with a set of suggestions and the defence sector was opened up in a way only then. So, this is an ongoing process and will keep happening. Since, this time, we have come up with decisions for 15 sectors at one go, we expect this to have a major impact on the economy, particularly on sectors like construction which have been desperate for funds for a long time. Quite a few developers had also locked in money and were waiting. Relaxation of the rules governing FDI in such sectors will also generate more employment opportunities for Indian youth.

TDB: Do these decisions have anything to do with the recently concluded Bihar Assembly elections?

NS: Relaxation of FDI norms in 15 sectors was announced on November 10, while the Bihar Assembly election results were out on November 8. How could we have worked on 15 different decisions overnight? The fact remains, not one election, not two elections, nothing in the last one year has stopped us from doing what we have committed ourselves to. This government is committed to bringing in reforms and we will continue to fulfill our commitment.

TDB: What do you think are the main reasons for a high growth economy like India not attracting as much FDI as one would have expected?

NS: That’s not true. On the contrary, FDI into India has grown by about 38-40% in FY2014-15, while world over there is a drop of 16%. So, FDI into India is actually growing at a very healthy rate. In fact, this is the kind of average that we are looking at. So, if world over, it is dropping by 16% and we are growing, I think FDI inflow into India is fairly healthy. And by the kind of decision, which the government has just taken, I think there will be more discerning investors wanting to come into the country.

TDB: Bharatiya Mazdoor Sangh (BMS) voices dissent on FDI reforms and has decided to join other trade unions to protest the latest reforms. How do you view the situation?

NS: The decisions we have taken are those on which we are willing to speak and engage with any number of people, including BMS. In fact, this evening (November 13, 2015), BMS is meeting us at 5 pm. We are open to meeting anyone because these are decisions taken keeping in mind the national interest. We are not going to hurt any sector. We are not going to hurt any factor of production. Reforms were brought in to get some buoyancy in sectors that are cash-starved, for instance, construction. You and I have paid some advance money for getting a flat for ourselves. But till today that has not happened. Neither are you better off, nor are the players in the industry. Now we all want the projects to be completed. And we need some kind of resources to be deployed to make this happen. So to benefit you, me and the sector, we have eased FDI norms, after considering all other factors. This does not at all mean that we are asking foreign investors to come in and wipe out all Indian construction companies.

TDB: Foreigners have preferred portfolio investment over FDI as far as investing in India is concerned. What do you think are the reasons for this? Are there structural deficiencies in our economy?

NS: Well, I may not be able to comment on why they choose this or that. However, one thing is sure that the government’s recent decision to remove the distinction between FDI and portfolio investment and to have a composite cap allowing for complete fungibility is going to help attract more inflows.

TDB: Is India in a position to make China’s slowdown an opportunity for the country’s manufacturing sector?

NS: Yes, certainly! China is now becoming a costlier place to manufacture. China’s demographics are no longer in its favour. Most of its population is heading towards retirement and the next generation’s productive-age population is already very small. Secondly, there is a structural adjustment happening in China. The country is now moving from an export-led economy to a consumer-led economy. The Chinese Premier himself has spoken about it. If you look closely enough, a lot of manufacturers are now moving out of China as it is no longer a place to be. India, on the contrary, has an advantage of having the largest segment of young and productive population, apart from being a low-cost production centre. All these factors are now attracting a lot of manufacturers into India.

TDB: In the defence sector, foreign investment proposals in excess of 49% can now be considered by the Foreign Investment Promotion Board (FIPB) instead of the previous policy of getting clearance from Cabinet Committee on Security (CCS) for them. What is the feasibility of this move?

NS: Defence and home ministries are represented in FIPB. We have done away with the role of CCS for the sake of ease of doing business. There is no merit in getting these clearances twice, first from FIPB and then from CCS. Besides this, we have also stated that in cases of fresh foreign investment resulting in change of ownership pattern, they have to come to the government for approval.

TDB: Foreign Trade Policy 2015-2020 sets an ambitious target of ‘$900 billion in exports by 2020’? That would require India’s exports of goods and services to grow at a CAGR of 16% in the next five years? But India’s exports of goods have contracted over the last year. Is the target achievable?

NS: It is in order to achieve this target that we are making these policy changes. We have set a target with a policy which is applicable for a five-year period between 2015 and 2020. We are taking steps initially to facilitate ‘Make in India’, which in turn will facilitate exports. Every step that we are taking is towards achieving the target set by the FTP.

TDB: There are a lot of changes in FDI policy related to single-brand retail. Going forward, can we expect similar changes in multi-brand retail too?

NS: We are talking about Indian manufacturers, who are by definition those who produce at least 70% of their products within India and who can source about 30% of their products from those who manufacture in India. In other words, everything that this Indian manufacturer is dealing with is ‘Made in India’. This Indian manufacturer – the FM had said in his budget speech – will be allowed to sell his wares even through e-commerce. What we have done here is to allow this Indian manufacturer to sell his goods in his own marketplace which he creates for his products through these platforms, instead of going and searching for market places provided by other platform providers. Hence, this provision is for Indian manufacturers only. 100% foreign investment is already allowed in single brand retail. Single brand retailers are even allowed to sell to B2B. So Cash and Carry is not defined differently. They are on their own a business entity. Here also some single brand is selling to another business. There is no contradiction. We are not supporting such players as multi-brand players, but as a business. 100% FDI was already allowed in single brand B2B. As far as multi-brand retail is concerned, there is no change in our stance.

TDB: The government was supposed to come out with a ‘detailed clarification’ on e-commerce. What has been done on that front?

NS: We have got inputs from the states. We are now putting them all together. We will soon at least come up with some definition of what e-commerce is.