Thursday, 11 January 2018 | Madhusudan Sahoo | New Delhi-
Cabinet also OK’s foreign investment up to 49% in Air India via approval route
In move to attract more foreign direct investment (FDI), the Government on Wednesday effected major changes by easing investment norms across key sectors in the country.
Ahead of the Budget, the Centre 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. Besides, the Government also eased the FDI policy for medical devices and audit firms associated with companies receiving overseas funds.
As Finance Minister Arun Jaitley is scheduled to present the Union Budget for 2018-19 on February 1, this is the Government’s second major liberalisation move on FDI policy in one go after major changes effected in June 2016.
The key decisions were taken by the Union Cabinet headed by Prime Minister
Narendra Modi. India, of course, has been consistently trying to attract foreign investors into the country through its FDI policy.
As far as the retail sector is concerned, the Government approved 100 per cent FDI under the automatic route for single-brand retail trading, a move that will give a boost to foreign retailer giants like Ikea and others.
Though 100 per cent FDI was allowed in the segment earlier, it required the Government approval. Major 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.
For aviation sector, the decision to allow foreign airlines to invest up to 49 per cent under approval route in Air India comes against the backdrop of Government’s plans to disinvest the state-owned carrier, a move to expedite the strategic divestment in Air India. “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.
Reacting to the Cabinet decision on Air India, Civil Aviation Minster Ashok Gajapathi Raju said, “Permitting 49 per cent foreign direct investment in Air India brings the airline on par with other domestic carriers and does away with the preferential treatment that was extended to the national carrier.”
Asked if the move will attract foreign bidders for Air India’s disinvestment, Raju added, “We would like them to come and participate. Ultimately the public sector is not supposed to become a financial drain for taxpayers. Air India’s woes are basically financial. Basically it is that. So, let’s see where it takes us.”
Apart from these key decisions, 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/FPIs to invest in power exchanges through primary market as well,” the statement said. On 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 also 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,” he said.
India Inc also welcomed the FDI policy decision, saying that it would certainly lead to further increase in foreign investment inflows. “India continues to attract a high level of foreign direct investment and CII has been very appreciative of the Government on measures already taken, especially on ease of doing business. Today’s announcement includes multiple measures targeted at specific sectors where opportunities exist,” said CII Director General Chandrajit Banerjee.
“FDI policy on Air India is expected to bring some capital to support a turnaround in the national carrier, while other clarifications such as definition of medical devices and investment in power exchanges through the primary market are the most welcome move of the Government,” added Banerjee.
Secretary in the Department of Industrial Policy and Promotion (DIPP) Ramesh Abhishek also 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 the Government’s 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 $60.08 billion has been received, which is an all-time high,” the statement added.
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