FDI norms tweaked in retail trading, aviation: All you need to know

In a move to broad base investments into the country, the Cabinet on Wednesday further tweaked FDI norms - the fourth time in three years. This includes allowing automatic approval to a full 100 per cent foreign direct investment (FDI) in the single brand retail segment while a foreign carrier may now pick up a stake in Air India.

Till now, government approval for FDI in single brand retail was given automatically when it was to the extent of 49 per cent of the paid-up capital, beyond which government permission was required.
 

The latest tweak is expected to give a fillip to the participation of foreign brands in India's growing retail space. But fears of small retailers bearing the brunt of this have continued with the Confederation of All India Traders (CAIT) strongly opposing the move.
 

“This will facilitate easy entry of MNCs in retail trade of India and will also violate the poll promise of BJP”, National Secretary General of CAIT Praveen Khandelwal said. It is a pity that instead of formulating policies for the welfare, upgradation and modernisation of existing retail trade, the government is more interested in paving way for the MNCs to control and dominate the retail trade of India, he added.
 

However, with many international brands not used to waiting for regulatory approvals in developed markets, FDI sentiments for India may considerably brighten, experts said. " We expect that FDI in the single brand retail trading sector will now gain further momentum due to the process not being subject to regulatory scrutiny and approval process,” Rabindra Jhunjhunwala, Partner at legal firm Khaitan & Co argued.
 

Aviation
 

In the aviation space, the Cabinet opened up the last slice of the aviation pie by allowing foreign airlines to invest in the national carrier, Air India, albeit only till 49 per cent.
 

However, with disinvestment of the carrier evoking strong responses earlier, on Wednesday it chose to clarify that 'substantial ownership and effective control of Air India would continue to be vested in the Indian national’.
 

Restrictions on foreign airlines as well as other foreign investors investing in any Indian carrier beyond the 49 per cent limit have also been reiterated.
 

But senior officials believe the move has been pushed by the Finance Ministry which hopes it will lead to the fiscal deficit reducing.
 

Construction business
 

The government has also clarified that real estate broking services does not amount to real estate business and is therefore now eligible for 100 per cent FDI under the automatic route.
 

This move is expected to in effect open up the entire construction development sector.
 

“The 100% FDI route had existed in previous years, allowing various multi-national property consultancies to enter India without local partners. Then, the route was closed down without notice or explanation. As such, this is historically not a new provision, but the timing of its re-introduction is certainly right, with RERA now deployed and looking to have nation-wide coverage.” Anuj Puri, Chairman of the Anarock property consultants said.

The players who can benefit from opening up of FDI are naturally limited, considering that only between 10-20% of property brokers and brokerages have registered themselves under RERA so far, he added.

While official figures for FDI into the segment is unavailable, Anshuman Magazine, Chairman, India & South East Asia of multinational firm CBRE said more than $1 billion worth of inflows has occurred in past 2 years.

Power market
 

Foreign institutional investors and Foreign Portfolio investors have also been allowed to invest in the power exchanges through primary markets as well.  Till now, FDI till 49 % was permitted under the automatic route in power exchanges registered under the Central Electricity Regulatory Commission (Power Market) Regulations, 2010. But these were restricted only to the secondary market.
 

Medical Devices
 

The Cabinet has also amended the definition of medical devices in the FDI policy.