Cabinet approves major changes in FDI policy

New Delhi: In big bang FDI reforms ahead of the budget, the government today permitted foreign airlines to invest up to 49 per cent in debt-ridden Air India, and eased norms for investment in single brand retail, construction and power exchanges.

The government also relaxed foreign direct investment (FDI) policy for medical devices and audit firms associated with companies receiving overseas funds. The decisions were taken by the Union Cabinet headed by Prime Minister Narendra Modi here.

In a move that will give a boost to foreign retailers like Ikea, the government approved 100 per cent FDI under the automatic route for single brand retail trading. Earlier also 100 per cent FDI was allowed in the segment, but it required government approval.

“The Union Cabinet … has given its approval to a number of amendments in the FDI Policy. These are intended to liberalise and simplify the FDI policy so as to provide ease of doing business in the country.
“In turn, it will lead to larger FDI inflows contributing to growth of investment, income and employment,” the government said in a statement.

The decision to allow foreign airlines to invest up to 49 per cent under approval route in Air India comes in the backdrop of government’s plans to disinvest the state-owned carrier. “Foreign investment(s) in Air India including that of foreign airline(s) shall not exceed 49 per cent either directly or indirectly substantial ownership and effective control of Air India shall continue to be vested in Indian National,” the statement said.

Air India has a total debt of about Rs 48,877 crore at the end of March 2017, of which about Rs 17,360 crore were aircraft loans and Rs 31,517 crore were working capital loans. The airline is expected to report a net loss of Rs 3,579 crore for 2017-18, as per budget estimates projected for 2017 -18 from a provisional net loss of Rs 3,643 crore for 2016-17.

Overseas investment policy has also been liberalised in case of power exchanges. Currently, the policy provides for 49 per cent 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,” the release said. Regarding the liberalisation in the construction development segment, the government has 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.

Commenting on the development, Commerce and Industry Minister Suresh Prabhu said the government has decided to “remove roadblocks” for receiving foreign investments. The minister expressed the hope that relaxation of norms would facilitate faster development of the economy.

This is the second major liberalisation in FDI policy by the NDA government in one go after major changes effected in June 2016. Finance Minister Arun Jaitley is scheduled to present the Union Budget for 2018-19 on February 1.