Cabinet approves major changes in FDI policy

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.

Amendments in the FDI policy are "intended to liberalise and simplify the 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 had a total debt of about Rs 48,877 crore at the end of March 2017, of which about Rs 17,360 crore was aircraft loan and Rs 31,517 crore was working capital debt.

The airline is expected to report a net loss of Rs 3,579 crore for 2017-18, as per budget estimates for 2017-18 . It had a provisional net loss of Rs 3,643 crore in 2016-17.

Overseas investment policy has also been liberalised in case of power exchanges, an online platform where electricity is traded. Currently, the policy provides for 49 per cent FDI under automatic route in power exchanges.

However, FII/FPI (foreign portfolio investors) purchases were restricted to secondary market only.

"It has now been decided to do away with this provision, thereby allowing FIIs (foreign institutional investors/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 decisions would help "remove roadblocks" for receiving foreign investments.

The minister expressed the hope that relaxation of norms would facilitate faster development of the economy.

"The move will not only attract additional foreign capital into the country, but will also provide an impetus to the retail industry growth, at a time when organised and retail is already seeing strong growth over the last 12 months.

"Global brands across different categories, from apparel to electronics to accessories will be aided through this, providing further options to Indian consumers and improving India’s ranking in ease of doing business," Rajat Wahi, Partner, Deloitte India said.

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.

Secretary in the Department of Industrial Policy and Promotion (DIPP) Ramesh Abhishek said that the move would help further improve investment climate of India.

Further, the government said that issue of shares against non-cash considerations like pre-incorporation expenses and import of machinery will now be permitted under automatic route in case of sectors does not require government nod.

Earlier approval was needed for pre-incorporation and expenses.

Relaxing a procedural requirement, the government said 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 (that is Pakistan and Bangladesh), FDI applications would be processed by the DIPP for government nod.

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.

Earlier the applications were processed by the Ministry of Home Affairs.

"Measures undertaken by the government have resulted in increased FDI inflows in to the country. In 2016-total FDI of USD 60.08 billion has been received, which is an all-time high," it added.