Walmart and Carrefour can now invest in India’s multi-brand retail through the foreign portfolio investment (FPI) route. In a major turnaround, the government, so far opposed to foreign investments in multi-brand retail, has decided to allow FPI up to 49 per cent or up to the sectoral cap (whichever is lower) through the automatic route. It means that foreign investors in multi-brand retail can bring in investments as FPI up to 49 per cent without government approval.
Foreign portfolio investment includes foreign institutional investments (FII), sub-accounts and qualified foreign investments (QFIs). However, foreign retailers will not be able to have direct management control of an Indian venture. FPI does not provide investors with the option of management participation.
Another interesting result is that the brownfield pharma projects will be allowed to get foreign investments through FPIs up to 49 per cent through the automatic route. Until now, foreign investments in brownfield projects were allowed only through the government approval route.
The only exceptions are the defence and banking sectors. In defence, portfolio investments by FPIs/FIIs/NRIs/QFIs and investments by Foreign Venture Capital Investors (FVCIs) together cannot exceed 24 per cent of the total equity of the investee/joint venture company, while the FDI cap is at 49 per cent. In the private banking sector, where the sectoral cap is 74 per cent, FII/FPI/QFI investment limits will continue to be within 49 per cent of the total paid-up capital.
With these changes, foreign investors do not need to approach the government to enter the multi-brand retail sector provided they bring investments through the foreign portfolio investment route. Since the policy continues to allow foreign direct investment up to 51 per cent through the automatic route, the government may decide to soften its stand on multi-brand retail further and take up such proposals as well.