Cabinet approves 100% FDI in single-brand retail, construction; FDI in Air India welcome till 49%

Last Updated: Thu, Jan 11, 2018 12:58 hrs
FILE PHOTO - A woman pushes a shopping trolley at a food superstore in Ahmedabad

New Delhi: The Union Cabinet's decision on Wednesday to approve 100 per cent foreign direct investment (FDI) in single brand retail trading (SBRT) and construction development has been met with positive response from the industry stand. Besides opening FDI gates, the decision would also enable opening gates for the debt-ridden Air India. 

The government also decided that foreign institution investors and portfolio investors be allowed to invest in power exchanges through primary market and amended the definition of "medical devices" in its FDI policy.

The decisions, taken at a meeting of the Union Cabinet chaired by Prime Minister Narendra Modi, was intended to liberalize and simplify FDI policy to provide ease of doing business.

The official statement read,"it has now been decided to permit 100 per cent FDI under automatic route. It has been decided to permit single brand retail trading entity to set off its incremental sourcing of goods from India for global operations during initial five years, beginning April 1 of the year of the opening of first store against the mandatory sourcing requirement of 30 per cent of purchases from India."

 "In turn, it will lead to larger FDI inflows contributing to growth of investment, income and employment," continued the statement.

Arun Thukral, MD & CEO at Axis Securities suggested that opening by FDI, the economic corridors for global single brand retailers such as IKEA, NIKE, DELL etc were opened. "Hurdles for investment too have been removed," he said.

"Similarly, the FDI in construction development also has been relaxed to 100% through automatic route and foreign airlines have been approved to invest upto 40% under approval route in ‘Air India’ thereby paving way for divestment of Air India. These developments will attract foreign investments and create employment opportunities in India. It will also encourage investments into supply chains thereby reviving the manufacturing sector," he added.

Kumar Rajagopalan, the CEO at Retailers Association of India hailed the move as one that would support the "Great Indian Retail Story".

He said, “It is known that global companies take time to develop good suppliers as partners and hence the relaxed time frame for sourcing is conducive without compromising India's need to be a good sourcing hub for global brands. In the long run, today's reform would help boost employment, bring in wide product choices for consumers and help grow not just the economy, but the nation as a whole.” The present FDI policy on single brand retail trading allows 49 per cent FDI under automatic route and FDI beyond 49 per cent and up to 100 per cent through government approval route.

For this purpose, it said, incremental sourcing would mean the increase in terms of value of such global sourcing from India for that single brand (in Indian rupee terms) in a particular financial year over the preceding financial year, by the non-resident entities undertaking single brand retail trading entity, either directly or through their group companies.

After completion of five-year period, the SBRT entity shall be required to meet the 30 per cent sourcing norms directly towards its India's operation, on an annual basis.

The Cabinet also decided to allow 100 per cent FDI in construction development relating to building townships, housing, infrastructure and real estate broking services.

"It has been decided to clarify that real estate broking service does not amount to real estate business and is therefore eligible for 100 per cent FDI under automatic route."

Under the present policy, foreign airlines are allowed to invest under government approval route in the capital of Indian companies operating scheduled and non-scheduled air transport services, up to the limit of 49 per cent of their paid-up capital.

However, this was not applicable to Air India, thereby implying that foreign airlines could not invest in the national carrier owned fully by the government.

"It has now been decided to do away with this restriction and allow foreign airlines to invest up to 49 per cent under approval route in Air India subject to the conditions that foreign investments in Air India including that of foreign airlines shall not exceed 49 per cent either directly or indirectly."

Making changes in the sector relating to power exchanges, the government removed the restrictions on investment by foreign institute investors and portfolio investors to invest in power exchanges through primary market as well.

Under the present policy, FII and FPI purchases were restricted to secondary market only.

In the pharma sector, the Cabinet decided to amend the definition of medical devices in the FDI policy.

"At present, the FDI policy in the pharma sector inter-alia provides that definition of medical device as contained in the FDI Policy would be subject to amendment in the Drugs and Cosmetics Act. As the definition as contained in the policy is complete in itself, it has been decided to drop the reference to Drugs and Cosmetics Act from FDI policy."

The Cabinet also decided to make changes relating to competent authority for examining FDI proposals from countries of concern.

As per the existing procedures, FDI applications involving investments from countries of concern requiring security clearance are to be processed by the Home Ministry for investments falling under automatic route sectors and activities.

"It has now been decided that for investments in automatic route sectors, requiring approval only on the matter of investment being from country of concern, FDI applications would be processed by Department of Industrial Policy and Promotion (DIPP) for government approval.

"Cases under the government approval route, also requiring security clearance with respect to countries of concern, will continue to be processed by concerned administrative department or ministry."

In another change, it has now been decided that issue of shares against non-cash considerations like pre incorporation expenses, import of machinery etc shall be permitted under automatic route in the case of sectors under automatic route.

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