The government of India today approved two long-discussed moves to attract foreign direct investment (FDI) to the country. In the more important of the two actions, India has approved a proposal to allow foreign retailers to own up to 51% of multibrand retail operations and up to 100% of single-brand operations, although the latter would require that 30% of the product be locally sourced. In the second action, the government has approved up to 49% foreign ownership of the country’s air carriers.
Under the new ownership rule for multibrand retailers, large international firms like Wal-Mart Stores Inc. (NYSE: WMT), France’s Carrefour and Britain’s Tesco could own a controlling stake in Indian supermarket chains. India’s state governments will be allowed to accept or reject the new rule, which many of them have long opposed, fearing the threat to the country’s small shop owners.
But unlike the retail operators, who have expressed interest in gaining access to India’s 1.2 billion consumers, the airlines industry is not clamoring to invest in the country’s air carriers. India’s airlines are in poor financial shape. While foreign airlines might want access to the country’s huge potential market, they are less interested in investing in an industry that is dominated by India’s state-owned (and badly run) Air India.
The major upside from the announcement is almost purely political. India’s government has been hampered by charges of mismanagement, corruption and indecisiveness. Today’s decisions are intended to demonstrate that the Congress Party can in fact lead the country.
So far the decisions have made no difference to share prices. Walmart’s shares are down about 0.4% at $74.85 in a 52-week range of $49.94 to $75.24.