The Union Cabinet has approved number of amendments to Foreign Direct Investment (FDI) Policy. The purpose of amendments is to simplify and liberalise FDI policy in India to provide ease of doing business in country. The liberalized policy will lead to larger FDI inflows contributing to growth of investment, employment and income.
Key amendments approved
- 100% FDI for Single Brand Retail Trading (SBRT) under automatic route.
- 100% FDI under automatic route in Construction Development.
- Foreign airlines allowed investing up to 49% in Air India under government approval route.
- FIIs/FPIs allowed investing in Power Exchanges through primary market.
- Definition of ‘medical devices’ amended in FDI Policy.
FDI policy on SBRT
The existing policy FDI policy on SBRT allows 49% FDI under automatic route, and beyond 49% up to 100% is allowed through government approval route. The amendment now permits 100% FDI for SBRT under automatic route. It also permits SBRT entity to set off its incremental sourcing of goods from India for global operations during initial 5 years against mandatory sourcing requirement of 30% of purchases from India.
Incremental sourcing means increase in terms of value of such global sourcing from India for that single brand (in Indian Rupees term) particular financial year over preceding financial year. After completion of 5 year period, SBRT entity shall be required to meet 30% sourcing norms directly towards its India’s operation on annual basis.
The amendment clarifies that real-estate broking service does not come under real estate business. Therefore, it is eligible for 100% FDI under automatic route.
FDI in Civil Aviation
Foreign airlines are allowed to invest capital in Indian companies operating scheduled and non-scheduled air transport services, up to the limit of 49% of their paid-up capital under government approval route. However, this provision was not applicable to Air India, implying that foreign airlines could not invest in Air India. The amendment does away with this restriction and allows foreign airlines to invest up to 49% under approval route in Air India.
The present FDI policy allows 49% FDI in Power Exchanges registered under the Central Electricity Regulatory Commission (Power Market) Regulations, 2010 under automatic route. However, Foreign Portfolio Investors (FPIs) and Foreign Institutional Investors (FIIs) purchases were restricted to secondary market only. The amendment now allows FIIs/FPIs to invest in Power Exchanges through primary market as well.
The approved FDI Policy changes definition of ‘medical devices’. Earlier FDI policy on pharmaceuticals sector provided definition of medical device as contained in FDI Policy will be subject to amendment in Drugs and Cosmetics Act. As Now the reference to Drugs and Cosmetics Act from FDI policy will be dropped.