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Cabinet allows 100% foreign investment in single brand retail trading

January 11, 2018

The Cabinet on Wednesday approved a proposal to bring some key changes in India’s Foreign Direct Investment (FDI) policy by liberalizing and easing investment in sectors like aviation, construction, single brand retail, etc. The government has further allowed 100 percent FDI under automatic route for single-brand retail trading and construction development. Currently, only 49 percent of FDI is allowed for single-brand retail, under automatic route and any investment beyond the limit requires governmental approval.

The Union Cabinet chaired by Prime Minister Narendra Modi, reviewed India’s foreign direct investment policy in certain sectors with a view to attracting more overseas fund. It also allowed foreign airlines to invest up to 49 percent in the debt-ridden Air India.

Foreign direct investment is a major driver of economic growth and a source of non-debt finance for the economic development of the country. In past, the government has brought some major changes in FDI policy in a number of sectors i.e. defense, construction, development, insurance, pension and other financial services, civil aviation, pharmaceuticals, etc. During the fiscal year 2017, FDI grew by 17 percent to $25.35 billion.
The approval of automatic route with respect to single brand retail trading will make the investment process quicker as now the process will not be subjected to regulatory scrutiny and approval process.
In case of the aviation sector, foreign airlines were initially allowed to invest about 49% in Indian companies operating scheduled and non-scheduled air transport. However, this provision was not applicable to national carrier Air India. The government has now removed this provision. Further, the restriction imposed by the substantial ownership and effective control (SOEC) shall still be applicable. This means that the new promoters of Air India will have to keep its chairman as Indian and can also not shift its operational headquarters to anywhere out of India. 

The relaxation of policy is aimed at providing a more investor-friendly climate for foreign investors and in turn attract more FDI to boost economic growth and further to create jobs. 


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