[Economy] Current 2014 Feb Week 1: FDI, Regulatory Bodies, Infrastructure (Part 2 of 3)

FDI multibrand retail

[Economy] Current 2014 Feb Week 1: FDI, Regulatory Bodies, Infrastructure (Part 2 of 3)

  1. Prologue
  2. [Act III] FDI related current affairs [2014FebWeek1]
    1. [FDI] Multi brand Retail: “Gaddari” by Delhi & Rajasthan
    2. [FDI] Lobbying by Walmart and Amazon
    3. [FDI] Railways: FM, HM oppose Chinese FDI
    4. [FDI] Drugs Pharmaceuticals
    5. [FDI] Vodafone: fully foreign owned
    6. [FDI] Andhra favorite despite Telengana protests
    7. IFC Rupee bonds
    8. [FDI] Defense
    9. [FDI] Environment clearances
    10. [FDI] flows in last eight months (from highest to lowest)
  3. [Act IV] Regulatory bodies (Truckload of)
    1. #1: DGH: need statutory status
    2. #2: PNGRB- koi hum ko bhi puchho yaar
    3. #3: Civil Aviation Authority= no country for non-IAS
    4. #4: Rail fare regulator: I’m Useless without statutory status
    5. #5: Desi Drug regulator: I want Firangi powers despite staff shortage
    6. #6: 14th Finance Commission: homework abhi baaki hai
    7. #7: 7th Central Pay commission
    8. #8: EPFO- I want to stay in news everyday
    9. #9: IRDA- I also want to stay in news every day
  4. [Act V] Infrastructure related
    1. #1: Monorail @Mumbai
    2. #2: Metro @Mumbai BOT Problem
    3. #3: North East: hydro, manpower potential
    4. #4: [Summit] 101st Indian Science Congress
    5. #5: Exhibition upgrades
    6. #6: Infrastructure Misc./chillar topics

Prologue

Overview of Economy related Affairs during 1-7 Feb 2014. Total three parts

  1. Part 1 of 3: fiscal and monetary policy
  2. (you’re here) Part 2 of 3: FDI, regulatory bodies and infrastructure.
  3. Part 3 of 3: bilateral, poverty-hunger-HRD, Agriculture-food processing and Persons in News (PIN).

[Act III] FDI related current affairs [2014FebWeek1]

Important basics:

  • FDI matters are handled by Department of Industrial Policy and Promotion (DIPP), under Commerce Ministry.
  • They release the FDI policy notification. (and not under Finance ministry or home ministry or corporate affairs ministry or external affairs ministry)
  • There are two types of FDIs : automatic approval vs non-automatic (i.e. where government permission necessary).
  • Where government permission is necessary, two things can happen:
Investment upto Rs.1200 crore Investment above Rs.1200 crore
  • You need to get permission from FIPB
  • Foreign Investment Promotion Board.
  • Need permission from Cabinet Committee on Economic Affairs (CCEA).
  • FIPB headed by Secretary of Department of Economic Affairs. (=IAS working in finance ministry=> meaning, the real “Boss” behind the curtains is Finance minister.)
  • CCEA is headed by Prime Minister. (although we all know who is the “real boss” behind the curtains.)

Other bodies related FDI

CCI
  • Cabinet commission on Investment (Boss: PM)
  • Project worth Rs.1000 crore or more.
  • But cannot override decision of Environment ministry.
CCI (infra) Cabinet Committee on infrastructure. No longer exists. It is merged with Cabinet Committee on Economic Affairs (CCEA)
PMG
  • Project monitoring group. Attached with Cabinet Secretariat. (and not PMO)
  • For fast track clearance to the stalled investment projects.
  • Of 1000 crore or more.
  • Claimed to be India’s first completely “file-less government office”- works entirly via web-platform.
  • In news because: Has cleared 70000 MW worth coal projects in last few months.

[FDI] Multi brand Retail: “Gaddari” by Delhi & Rajasthan

FDI multibrand retail

2012 Government permits 51% FDI in Multibrand retail.
2013 Total 12 states/UT permit FDI in Multibrand retail.

Including Rajasthan and Delhi (Congi government in both states)

2013, Dec
  • Congi lost Rajasthan to BJP and Delhi to AAP
  • UK company “TESCO” becomes the first MNC to give 51% FDI in multi-brand retail. They tie up with TATA to open malls in India.
2014 New state governments of Delhi and Rajasthan, write letter to DIPP saying “we want to cancel the permission  given to FDI-multibrand, by the previous Congi governments.”

Union government is upset because

  • Delhi Rajasthan’s move will create negative impression among foreign investors- “India has an unpredictable policy environment”.
  • So far 12 state/UT has permitted. MINUS Delhi, Rajasthan = only 10 state/UT left where MNC can open multibrand shopping malls. = Market not “Big enough” to attract investors.
  • Therefore, Union asks Attorney-General “can state governments revoke such permission after change in political regime?”
  • Experts say “yes”. Besides even if Union gets some relief from Supreme court, still AAP/BJP state governments could refuse to give building permission etc. to those MNC to open shopping malls.

[FDI] Lobbying by Walmart and Amazon

  • Lobbying= when private companies try to influence the politicians, to make favourable policy/act for them.
  • American companies spend truckload of cash on lobbying- both within US and outside. But as per American laws, they’ve to submit report of their expenditure on lobbying (even if done in foreign countries.)
  • So, from such disclosure reports, it was found that
2012 Walmart spent crores to lobby for FDI-multibrand retail in India
2013 Government (Corporate affairs ministry) forms a commission to look into this allegation. (only one man army: retired Justice Mukul Mudgal)
2013 Amazon spent crores to lobby for FDI in E-commerce in India. (and simultenously government releases a “Whitepaper” on FDI in E-commerce. If you join the dots, then it’s obvious government is influence by Amazon lobbying.
2014 Justice Mukul Mudgal gives his report to Government (Corporate affairs ministry.)

Limitations:

  • Mukul Mudgal panel was not formed under “commission of Inquiry act” => he did not have the power to summon documents/witnesses.
  • Walmart executives did not cooperate with him, refused to give detailed  breakup of account/expenses in India.
  • Walmart maintains that company did not spend money to lobby in India. Only some individual executives of walmart spend money from their own salary. So we as a “Company” have not broken any Indian law.

[FDI] Railways: FM, HM oppose Chinese FDI

DIPP: Department of Industrial Policy & Promotion wants to liberalizing FDI in Railways.  here is their recommendation:

permit FDI in Don’t permit FDI in
  • high-speed tracks
  • Railway freight lines connecting ports, mines and power installations
  • Railway corridors in sub-urban areas.
  • existing passenger rail network
  • Existing freight network operations

DIPP gave this note to Cabinet for consideration. But Home Minister and finance minister say Chinese FDI shouldn’t be allowed in railway sector because:

  • China is India’s main rival on the economic and military fronts,
  • We have unresolved border disputes with China.
  • Recently Chinese company Huawei was accused of hacking into BSNL network.
  • Therefore, Chinese investment in core sectors such as Railways= Dangerous from National security POV. (Point of view).
  • Even if Non-Chinese players are allowed thru FDI window, all issues related to security, safety and quality control should vest with the Indian Railways.

[FDI] Drugs Pharmaceuticals

Present status What DIPP wants
  • FDI in New projects= 100% automatic route (don’t need permission from Government/FIPB/CCI)
This system is right.
  • FDI in existing pharma companies =100% but ned permission from  FIPB (Foreign Investment Promotion Board) approval.
Not good. FDI in existing Indian companies should be reduced to 49% (from 100%)**

**why? Why does DIPP want to reduce FDI in existing desi-pharma companies?

  • Because if desi pharma cos are 100% owned by Foreign MNC giants, it’ll impact the availability of affordable/cheap drugs in India.
  • And in the worst case scenario: Pfizer /Novartis may simply buy out desi companies and make them produce only the patented expensive drugs only (and not the cheap generic drugs.)

Latest clearance: US company Mylan to acquire desi drug company Agila.

 [FDI] Vodafone: fully foreign owned

  • Vodafone India’s parent company is located in Mauritius, owns >60% shares in Vodafone India.
  • The parent firm wanted to buy all shares from Indian shareholders, to have 100% ownership of shares.
Dec 2013 FIPB approves
Feb 2014 Cabinet also approves

Thus, Vodafone India=First telecom company in India that is 100% fully owned by Foreigners.

[FDI] Andhra favorite despite Telengana protests

  • Andhra CM says that despite the political turmoil (about Telengana), Andra pradesh is still favorite destination for foreign investors. – MNCs like  Johnson and Johnson, Proctor and Gamble are setting up plants worth crores of rupees.

Why?

  • John D Rockefeller (American oil tycoon)- he was richer than Bill Gates, Steve Job and Mark Zuckerburg.
  • His business mantra: “The way to make money is to buy when blood is running in the streets.” He used to buy firms, factories, land, shares and bonds – during riot/war/famine/depression like situation – because at that time businessmen in distress would sell their assets at throwaway prices.
  • Perhaps same is happening behind the curtains in Andhra. That’s why favorite destination for MNCs.

IFC Rupee bonds

  • IFC= International finance corporation, it’s a member of the World Bank Group.
  • They’ve released IFC Rupee bonds.
  • Foreign investors buy such bond (by paying dollars to IFC). Who are these clients? Asset companies, Private banks, insurance cos, even central banks of Asia, Europe and US.
  • IFC convert these dollars into rupees and invests in India- particularly  in the areas of low-growth states.
  • They earn money (in Rupees), covert it into dollars.
  • Then principle/interest paid to you in (dollars), and IFC keeps some part as commission.
  • IFC also doing same with Brazilian real, Chinese renminbi, the Nigeria naira, Russia ruble etc. They convert dollars into local currency and invest.

So, is this FDI or FII? If we go by the Chindu definition (less than 10% investment in a company=FII and >10%=FDI, then rupee bonds is mostly FII).

[FDI] Defense

Needs a separate article. Just a few point here:

DefExpo
  • 2014 Held in Noida (UP);
  • by Defense ministry
  • Biennial event. (Every second year)

At present FDI limit in Defense= 29%. Latest clearance….

Joint venture ownership
Thales (UK firm) 26%
BEL (Desi) 74%
Product Main focus= Radar production in India.

Defense procurement procedure 2013

  • Wants to boost Indian defense industry (Both public + private sector)
  • In Defense purchases, it gives preferences to  Buy (Indian), Buy and Make (Indian) category of products.
  • India wants to procure 70% of its defense requirement from domestic players (both public + private) – but difficult given the low limit in FDI.

Some tie-ups between Foreign and Desi brands:

Sensor
  • MicroObserver Unattended Ground Sensor (UGS) for securities agencies.
  • By Bharat electronics + an American company
UAV
  • SQ-4 Recon= new brand of Unmanned Aerial Vehicle (UAV).
  • India based OIS-AeroSpace + a UK  company.
Vehicle
  • Light armoured high mobility vehicle (LAMV)
  • By TATA and a UK  company.

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