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Cabinet approves major changes in FDI policy

Thursday, January 11, 2018

In big bang FDI reforms ahead of the budget, the government yesterday permitted foreign airlines to invest up to 49% 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.

In a move that will give a boost to foreign retailers like Ikea, the government approved 100% FDI under the automatic route for single brand retail trading. Earlier also 100% 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% 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% 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.

Industry hails new foreign capital norms in retail
Industry experts as well as the largest trade body of retailers RAI have hailed the new foreign investment norms for single-brand retail wherein government yesterday allowed automatic approvals for 100% foreign capital, as a positive step.

So far, only 49% FDI was allowed under automatic route in singe-brand retail. Investment beyond that level required government approval. Furthermore, local sourcing norms have also been relaxed for a five years.

"We believe the decision to allow 100% FDI through automatic route will ease the process for foreign as well domestic brands," Kumar Rajagopalan of the industry body Retailers Association of India (RAI) said in a statement.

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