Approval - In the single-brand retail, the Centre has allowed 100% FDI through the automatic route, from the 49% at present.
100% FDI is allowed in construction development relating to building townships, housing and infrastructure and real estate broking services.
Local Sourcing - The mandatory 30% requirement could be relaxed for companies with 'state-of-the-art' or 'cutting edge' products, for which local sourcing was not possible.
However, the absence of a definition for 'state-of-the-art' or 'cutting edge' technology has stalled the applications of global companies.
The mandatory local sourcing is now relaxed for the first five years.
Thereafter, single-brand retailers will be required to meet the 30 per cent local sourcing norm.
Powersector - The government has removed the restrictions on investment in power exchanges through the primary market.
This applies to foreign institutional investors and portfolio investors.
Till now they could do so only through the secondary market.
Air India - Importantly, the Centre has allowed foreign airlines to invest up to 49% under the approval route in Air India.
These are subject to the conditions that -
foreign investment(s) in Air India, including that of foreign airline(s), shall not exceed 49% either directly or indirectly
substantial ownership and effective control of Air India shall continue to be vested in an Indian national
What is the rationale for Air India decision?
The move comes in the backdrop of Singapore Airlines and Tata Group evincing interest in bidding for the debt-laden national carrier.
As per the present policy, foreign airlines are allowed to invest under the government approval route up to the limit of 49% of their paid-up capital.
The investments are made in the capital of Indian companies operating scheduled and non-scheduled air transport services.
However, this provision was not applicable to Air India, and the government has now decided to do away with this restriction.
The move is aimed at bringing Air India on par with other Indian airline operators with respect to FDI norms.
What is the significance?
The move regarding airlines was much needed in light of the proposed privatization of Air India.
The changes to the FDI norms would trigger significant interest in Air India from foreign airlines and thus increase the number of interested bidders and the valuation.
However, the actual terms of the offer and conditions attached would determine the level of participation in the bids.
The possible divestment would help spur more jobs and growth in Air India.
The amended norms, in general, have cut the red tape and ensured a more predictable and easier policy structure.
The automatic approval will save companies from the delaying procedures with the Department of Industrial Policy and Promotion.
The changes gains significance with India's goal of making it to the top 50 countries in the World Bank’s ease of doing business ranking.
Source: The Hindu, Business Standard
Quick Fact
Local Sourcing
Local sourcing requirement mandates that a global company contract the goods or services delivered or manufactured within the domestic country.
Companies, under the new norms, will be allowed to set off purchases of goods from the country for their global business against the 30% requirement for the first five years.
The offset amount will be equal to the annual increase in the value of goods purchased from India for global operations in rupee terms.
The relaxed time frame for local sourcing is conducive for global companies to develop good suppliers as partners.
