Govt relaxes FDI norms in key sectors

Source: The Hitavada      Date: 11 Jan 2018 08:29:06



Air India, which had a debt of Rs 48,877 cr in March 2017, is expected to report a loss of Rs 3,579 cr for 2017-18


IN big bang reforms ahead of Bharatiya Janata Party Government’s last full Budget, foreign airlines were on Wednesday allowed to buy up to 49 per cent stake in Air India while easing FDI rules for several sectors including single brand retail and construction.

Wednesday’s decision marked a key change in the aviation industry where the Government had already allowed up to 49 per cent FDI in private carriers. There was a restriction that foreign airlines could not invest in the loss-making Air India.

“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,” an official statement said.

It added that substantial ownership and effective control of the national carrier shall continue to be with “vested in Indian national”. The Cabinet also approved 100 per cent FDI in single brand retail trading, tweaking its present policy of allowing only 49 per cent foreign investment in the sector through automatic route and the rest through Government approval.

It also gave five-year holiday for foreign investors from the mandatory 30 per cent of local purchases. But after that, they will be required to meet 30 per cent of sourcing norms directly towards its India operations 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.”

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. The decisions came ahead of Modi’s participation in World Economic Forum at Davos this month where he is likely to hard sell India as an attractive investment destination.

They also came weeks before the BJP Government presents its fifth and final full year budget on February 1 before general elections next year. “By permitting FDI up to 100 per cent under automatic route in single brand retail trading, the Government has eliminated the time lag for foreign investor to set up a single brand retail operations in India,” said Dev Raj Singh, Executive Director, Tax & Economic Policy Group, EY India. The changes will give a boost to FDI inflows, he said. 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 amendments are intended to liberalise and simplify the FDI policy so as to provide ease of doing business. “In turn, it will lead to larger FDI inflows contributing to growth of investment, income and employment,” the Government said in a statement. 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 for working capital. It is expected to report a net loss of Rs 3,579 crore for 2017-18.

Meanwhile, the Congress and the CPI-M slammed the Govt move on Air India, saying it would only lead to the national carrier going into the hands of a foreign airline. Former Union Minister Anand Sharma said the Govt should come clear on the Air India deal as to whether its assets “worth lakh of crores of rupees” and its route rights would also go to the investor. The Communist Party of India-Marxist (CPI-M) said the Modi Govt was now moving towards handing over Air India to a foreign airline. The Govt should heed the recommendation of the Parliamentary Standing Committee on Transport, Tourism and Culture which has asked the Govt to review its decision on privatisation of Air India and provide five years to revive the airline with its debt written off.”

There was support to the Air India move. Pervez Damania, a former Director of the now defunct Kingfisher Airlines, welcomed it saying the “Govt has no business to be in flying”. Calling it a “serious matter” for small businesses, the Confederation of All India Traders opposed the FDI in single brand retail.