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Government allows 100% FDI in single-brand retail

Government allows 100% FDI in single-brand retail

In a significant decision, the Union Cabinet on Wednesday approved 100% foreign investment in single brand retail trading and construction development and chose to open up Air India for FDI up to 49%.

In a bid to attract more overseas investment and facilitate job creation, it has also made a decision to allow foreign airlines to invest up to 49% through the "approval route" in government-owned carrier Air India.

On similar lines, EY India's executive director (tax & economic policy) Dev Raj Singh said the move will slash the time taken for a foreign investor to set up a single brand retail.

In a move aimed at further improving ease of doing business, the Cabinet also allowed single-brand retailers to start local operations without federal approval and foreigners to own up to 100 per cent of real estate brokerages. This move is expected to expedite the Air India divestment process.

In the case of medical devices, the government has permitted a wide range of items that can attract up to 100 per cent FDI via the automatic route.

Until now, power exchanges registered under the Central Electricity Regulatory Commission (Power Market) Regulations, 2010, were allowed to raise up to 49% FDI through the automatic route. "Now being in the government, it has hypocritically reversed its position".

"In a market like India, which is one the world's most opportunistic markets, where the retail industry has emerged as one of the most dynamic and fast-paced industries, this news of 100 per cent FDI in single brand retail is one of the most optimistic development".

At the daily briefing, the Congress played old speeches of Modi attacking the then UPA government for allowing FDI in single brand retail.

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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.

"The timing for this announcement is significant as the retail sector is poised to receive significant real estate supply in the near future". However, foreign investors' purchases were restricted to the secondary market only.

Confederation of All India Traders said the decision would lead to an easy entry for multi-national companies.

India received US$60.1 billion in foreign direct investment (FDI) in 2016 to 2017, according to government statistics.

Is the 100 percent clearance a little late in the day considering that those who were serious about coming to India when FDI approval allowed 49 percent under automatic route, and for FDI beyond 49 percent and up to 100 percent through government approval route? Earlier also 100 per cent FDI was allowed in the segment, but it required government approval.

Once the country's monopoly airline, Air India has slowly lost market share to new low-priced private players in one of the world's fastest-growing airline markets.

The cabinet eased the local sourcing rule for foreign single-brand retailers; for five years, such entities are not required to meet the 30% target for local sourcing by their Indian units if they are already doing so for their global operations, it said.