INDIA BUSINESS WORLD - AUGUST 2006
THE MONTH THAT WAS...

COURIER FDI CAP MAY BE CUT

IN AN unprecedented move, the government is considering lowering the FDI limit in the courier and express sector to 49% from 100% now. If the government has its way, MNCs like DHL, Federal Express and Blue Dart will soon have to scout for Indian partners.

The move is part of the other radical steps -- including restrictions on carrying letters below 300 grams and imposition of a universal service obligation levy, like in telecom -- that the government has proposed for regulating private courier players.

While the Department of Posts has already endorsed the proposal, it has been sent to the ministry of law and justice for clearance. An Amendment Bill to the Indian Post Office Act will then be submitted in Parliament. The proposed move is likely to affect at least 10 leading global courier companies.

The government is planning to implement the proposal by mandating all courier and express industry players to pay a one-time registration fee of Rs 10 lakh. The catch here is that players must have a minimum 51% Indian share holding to register.

The courier industry has warned that the move is against the global norm of opening express services to foreign investment. The Express Industry Council of India (EICI), Federal Express, Blue Dart and Rajasthan Couriers Association of India, in their communication to the government, has said this would send the message “to global companies that in all industries, the level of investment in India can be changed arbitrarily”.

Incidentally, the EICI, which represents a cross-section of members drawn from international and domestic express companies, has pointed out that since 2004, even China permitted whollyowned foreign enterprises in the express services sector. EICI members contribute 80% of the industry's turnover in India .

“The Indian government has approved numerous investments by foreign entities in the express industry. If this Bill is enacted, it may mean that the company has to shed 51% equity to abide by the new guidelines. India will be going backwards if this section in implemented, and is contrary to the Indian government's announced efforts to open the Indian economy to foreign investment,” the EICI added.

Endorsing similar views, the US India Business Council has said: “Registration is limited to companies having FDI to 49% whereas 100% FDI already exists. Thus the proposal will hamper the growth of express courier industry”.