Cabinet approves 100% FDI in retail, construction

 In major changes liberalising foreign direct investment in key sectors, the Union Cabinet on Wednesday approved 100 per cent foreign investment in single brand retail trading (SBRT) and construction development and decided to open up Air India for FDI up to 49 per cent.

Besides, the government also decided that foreign institution investors and portfolio investors be allowed to invest in power exchanges through primary market and amended the definition of "medical devices" in its FDI policy.

The decisions, taken at a meeting of the Union Cabinet chaired by Prime Minister Narendra Modi, were intended to liberalize and simplify the FDI policy to provide ease of doing business.

"In turn, it will lead to larger FDI inflows contributing to growth of investment, income and employment," an official statement said.

The present FDI policy on single brand retail trading allows 49 per cent FDI under automatic route and FDI beyond 49 per cent and up to 100 per cent through government approval route.

"It has now been decided to permit 100 per cent FDI under automatic route. It has been decided to permit single brand retail trading entity to set off its incremental sourcing of goods from India for global operations during initial five years, beginning April 1 of the year of the opening of first store against the mandatory sourcing requirement of 30 per cent of purchases from India," the statement said.

For this purpose, it said, incremental sourcing would mean the increase in terms of value of such global sourcing from India for that single brand (in Indian rupee terms) in a particular financial year over the preceding financial year, by the non-resident entities undertaking single brand retail trading entity, either directly or through their group companies.

After completion of five-year period, the SBRT entity shall be required to meet the 30 per cent sourcing norms directly towards its India's operation, 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."

Under the present policy, foreign airlines are allowed to invest under government approval route in the capital of Indian companies operating scheduled and non-scheduled air transport services, up to the limit of 49 per cent of their paid-up capital. 

However, this was not applicable to Air India, thereby implying that foreign airlines could not invest in the national carrier owned fully by the government. 

"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."

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.

In the pharma sector, the Cabinet decided to amend the definition of medical devices in the FDI policy.

"At present, the FDI policy in the pharma sector inter-alia provides that definition of medical device as contained in the FDI Policy would be subject to amendment in the Drugs and Cosmetics Act. As the definition as contained in the policy is complete in itself, it has been decided to drop the reference to Drugs and Cosmetics Act from FDI policy."

The Cabinet also decided to make changes relating to competent authority for examining FDI proposals from countries of concern.

As per the existing procedures, FDI applications involving investments from countries of concern requiring security clearance are to be processed by the Home Ministry for investments falling under automatic route sectors and activities.

"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, FDI applications would be processed by Department of Industrial Policy and Promotion (DIPP) for government approval.

"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."

In another change, it has now been decided that issue of shares against non-cash considerations like pre incorporation expenses, import of machinery etc shall be permitted under automatic route in the case of sectors under automatic route.