The government of India unveiled a fresh round of liberalisation of the foreign direct investment (FDI) policy, allowing foreign airlines to invest up to 49% in Air India, and opening up 100% FDI in single brand retail under the automatic route. Similarly, 100% FDI has been allowed via the automatic route in real estate broking services.
Under the existing rules, foreign airlines are allowed to invest under the government approval route in the capital of Indian companies operating scheduled and non-scheduled air transport services, up to the limit of 49% of their paid-up capital. However, this provision was not applicable to Air India, thereby implying that foreign airlines could not invest in Air India.
FIIs, FPIs can invest in power exchanges via primary market
It has now been decided to allow foreign airlines to invest up to 49% under approval route in Air India subject to the condition that foreign investment (s) in Air India including foreign airlines shall not exceed 49% either directly or indirectly,” the government said. But it said that substantial ownership and effective control of Air India shall continue to be Indian.
The cabinet also allowed 100% FDI under the automatic route for single-brand retail as well as easing sourcing norms. Under the present policy only 49% FDI is allowed under the automatic route. Government approval is needed beyond 49% and up to 100%.
The government has decided to permit single brand retail trading entities to set off their incremental sourcing of goods from India for global operations during the initial five years, beginning April 1 of the year of the opening of first store against the mandatory sourcing requirement of 30% of purchases from India.
Incremental sourcing will mean the increase in terms of value of such global sourcing from India for that single brand (in 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 this five-year period, the single brand retail entity shall be required to meet the 30% sourcing norms directly towards its India operation, on an annual basis,” an official statement said. Retailers are, however, eyeing further relaxation. “…while it is (a step) in the right direction, we look forward to the same relaxation for the period beyond the initial five years as well, which works towards ease of doing business in India,” said Janne Einola, country manager at H&M India.
The government also clarified that real-estate broking service does not amount to real estate business and is therefore, eligible for 100% FDI under the automatic route.
Foreign institutional investors (FII) and portfolio investors (FPI) have been allowed to invest in power exchanges through the primary market as well. Current policy allows 49% FDI under the automatic route in power exchanges. However, FII/FPI purchases were restricted to secondary market only.