Cabinet relaxes FDI policy norms for retail, airlines, construction, power exchanges

11 Jan 2018 Evaluate

Removing all hurdles for investment and opening the economy further for global players, the Union Cabinet, headed by Prime Minister Narendra Modi, has made a slew of amendments in India’s Foreign Direct Investment (FDI) policy for key sectors. In some sectors, it allowed 100% foreign investment, while in others the cabinet raised the existing foreign investment limit. The move is intended to liberalise and simplify the FDI policy so as to provide ease of doing business in the country. The sectors involve single brand retail trading, construction, power exchanges and aviation. The government also said that in turn, it will lead to larger FDI inflows contributing to growth of investment, income and employment.

The government has permitted 100% FDI under automatic route for single brand retail trading (SBRT). Under the existing policy, this limit was 49% and for 100% FDI the government approval was required. After the amendments, no government approval is required for 100% investment. It was also decided to permit SBRT entity to set off its incremental sourcing of goods from India for global operations during initial 5 years, beginning 1st April of the year of the opening of first store against the mandatory sourcing requirement of 30% of purchases from India. After completion of this 5 year period, the SBRT entity shall be required to meet the 30% sourcing norms directly towards its India’s operation, on an annual basis.

In the civil aviation sector, the government for the first time allowed foreign investors to put money in Air India. So far, foreign airlines were allowed to invest in Indian companies operating scheduled and non-scheduled air transport services up to the limit of 49%. However, this provision was not applicable to Air India, thereby implying that foreign airlines could not invest in the state-run airline. It was decided to do away with this restriction and allow foreign airlines to invest up to 49% under approval route in Air India subject to the conditions that foreign investment(s) in Air India including that of foreign Airline(s) shall not exceed 49% either directly or indirectly. Substantial ownership and effective control of Air India shall continue to be vested in Indian National.

Overseas investment policy has also been liberalised in case of power exchanges. Currently, the policy provides for 49% FDI under automatic route in power exchanges. However, FII/FPI purchases were restricted to secondary market only. It has now been decided to do away with this provision, thereby allowing FIIs/FPIs to invest in Power Exchanges through primary market as well. Regarding the liberalisation in the construction development segment, the government has clarify that real-estate broking service does not amount to real estate business and is therefore, eligible for 100% FDI under automatic route. The government also relaxed FDI policy for medical devices and audit firms associated with companies receiving overseas funds.

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