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FDI policy liberalised, 100% FDI now in retail, construction

FDI policy liberalised, 100% FDI now in retail, construction

The government on Wednesday allowed 100 per cent foreign direct investment (FDI) in single-brand retail via automatic route and eased a rule on 30 per cent mandatory local sourcing of products for five financial years after opening the first Indian store.

In big bang reforms ahead of BJP government's last full Budget, the Centre today allowed foreign airlines to buy up to 49 per cent stake in Air India and eased FDI rules for several sectors including single brand retail and construction.

The further liberalisation of FDI policy is aimed at providing ease of doing business in the country. "Foreign investments in Air India including that of foreign airlines shall not exceed 49% either directly or indirectly", the government said in a statement.

Rabindra Jhunjhunwala, partner, Khaitan & Co, said: "The approval through the automatic route will quicken the FDI clearance process as no prior government approval would be required".

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.

Between April and September of FY18, FDI in India reportedly surged by 17% to $25.35 Bn.

India allows 100 percent foreign investment in its other local airlines, but caps foreign airlines' stake at 49 percent. "But I don't think this move alone will open the floodgates in foreign investment in retail because whoever wanted approval in single-brand retail so far got it without much difficulty".

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Retail saw significant increase in PE investments in fiscal 2017, indicating a significant growth in retail real estate in the coming years.

Congress communications in-charge Randeep Surjewala alleged that by doing away with the requirement of 30% sourcing through "Make in India", Prime Minister Narendra Modi had exposed his "duplicity and doublespeak" on the issue.

The cabinet has made a decision to permit foreign retailers setting up shop here to set off the goods sourced incrementally from India for their global operations during the initial five years against the mandatory sourcing requirement of 30 per cent of purchases from India.

The BJP, then in Opposition, had also taken out a small booklet which ripped apart the UPA government's logic behind allowing 100% FDI through government approval in single brand retail. Previously, this required special government approval.

Industry players welcomed the development saying it would help attract more foreign investments in the sector and boost the economy and generate employment.

Condemning the Modi government's "love for MNCs", CAIT Secretary General Praveen Khandelwal said the move would facilitate easy entry of multi-national companies in retail trade and leave a large number of people jobless.

Among the "disastrous decisions", Sen listed the "hasty merger" of Indian Airlines and Air India and "forcible procurement" of a huge fleet of aircraft from foreign companies through direct purchase at an in-opportune time thereby imposing on the company an "unbearable burden of indebtedness leading to loss".