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Allow FDI before budget to change investor sentiment: FICCI
January, 11th 2012

FDI as a subject of debate has always made the general secretary of FICCI Rajiv Kumar happy. The government's intentions are clear. It hopes to reap the benefits by getting the green signal on FDI in multi-brand retail. Kumar hopes that FDI in multi-brand retail comes in before the budget session.
While he welcomes 100% FDI in single-brand retail, he doesn't see it as much of a game changer. "I am unsure how riders on single-brand retail will work," he tells CNBC-TV18.

Kumar feels that foreign conglomerates will find it difficult to meet certain conditions. "I don't know how brands like Gucci and LV meet our sourcing norms," he adds.

Below is an edited transcript. Watch the accompanying video for more.

Q: Let me begin by asking you about single brand retail. This wasn't the controversial one but it was kept in limbo for at least 46 days though today it's been notified. Do you see this as a precursor to multi-brand retail? So can we suppose that all is not lost on the multi-brand retail front given the fact that the government has finally notified single brand retail?
A: Just like everybody else I welcome this very strongly. I really do hope that this is a precursor to the multi-brand retail being finalized and being implemented soon after the UP elections. By this move the government has indicated its resolve to go ahead with this reform in the retail trade sector.

But I think if there comes a consensus now that reform is long overdue then the trade sector needs to be modernized. I very much look forward to multi-brand retail also being liberalized and FDI allowed before the budget because that will change the investment sentiment and make it far more positive as we approach the budget.

Q: There continues to be a question mark on whether multi-brand retail will get done perhaps after the UP elections or it may take a little bit longer? How significant will single-brand retail notification really be as a mood changer?
A: On that score, I don't think I will rate it very high because this was expected a long time ago. There were of course no political problems or stumbling blocks here since it's not really such a major thing.

For instance, the impetus that a multi-brand retail will give to other sectors, which is the real estate sector or to the employment of the small and medium entrepreneurs or to the farmers, all these positive effects are not there for single-brand. So, yes, it's a positive step, but in terms of a mood changer, I am afraid it is rather weak doors at this stage.
Q: One of the conditions if you were to actually go from 51% to 100% even in single-brand retail there is still a mandatory sourcing requirement of 30% from small and medium enterprises. So politically they are being able to sell the idea that this is going to create jobs, but do you really see foreign investors being keen to invest in this market given that condition?

A: I am not sure how this condition will be met. For instance there are some brands and some producers like IKEA, which regularly produce up to 50% of some of their product lines from small and medium enterprises, but I don't know how a LV will have 30% coming from SMEs.

I presume those are 30% SMEs from India. That seems to be quite difficult given that some of these single brands have very high quality requirements. Hence it's not clear as to why this condition has been imposed and how this will be taken forward by the single-brand retailers.

Q: Over the last 48 hours, the DGCA has made it very clear that the civil aviation sector is in trouble. All of these airlines do require significant doses of equity infusion. Do you believe that the government will nudge SEBI to move fast as far as that carve out is concerned from the takeover code to allow this proposal to move forward?

A: I am sure the government will do this. This is really a long awaited case, better late than never. The first proposal had come in 1994 when Tatas and Singapore Airlines wanted to move in. So, given the rather dire state in which the civil aviation industry is in today and the need for liquidity infusion into the sector, this is very much required at the moment.
The government will nudge Sebi into doing this carve out because without that you will not get investors interested in the sector. I really do wish that this takes place sooner rather than later. Otherwise the industry which has got such a promising future given its rate of growth of 20% plus will be in trouble.

Q: The Finance Ministry is in the process of wrapping up the pre-budget consultations with various stakeholders. Do you believe that budget 2012 is something that we should be excited about or should we keep our expectations low?
A: We in the industry constantly live with high hopes and optimism and the country needs a budget, which is full of out of the box ideas. It cannot be just merely a statement of accounts of the government, but has contents of reform proposals. There is a move towards that because I believe for example the Finance Minister has called for consultations with the sugar industry in the hope that the industry would be decontrolled. This is the one time where we need a budget, which is a big bang budget because that's what will change the mood that you are talking about.

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