The Union Cabinet chaired by the Prime Minister Narendra Modi gave its approval to a number of amendments to the FDI Policy.
- These are intended to liberalise and simplify the FDI policy so as to provide ease of doing business in the country.
- Foreign Direct Investment (FDI) is a major driver of economic growth and a source of non-debt finance for the economic development of the country.
- During the year 2014-15, total FDI inflows received were $45.15 billion as against $36.05 billion in 2013-14. During 2015-16, the country received total FDI of $55.46 billion. In the financial year 2016-17, total FDI of $60.08 billion has been received, which is an all-time high.
Single Brand Retail: Extant FDI policy on Single Brand Retail Trading (SBRT) allows 49% FDI under automatic route and FDI beyond 49% and up to 100% through Government approval route. It has now been decided to permit 100% FDI under automatic route for SBRT. It has been decided to permit the single brand retail trading entity to set off its incremental sourcing of goods from India for global operations during initial 5 years, beginning 1 April of the year of the opening of the first store against the mandatory sourcing requirement of 30% of purchases from India.
Civil Aviation: As per the extant policy, foreign airlines are allowed to invest under Government approval route in the capital of Indian companies operating scheduled and non-scheduled air transport services, up to the limit of 49% of their paid-up capital. However, this provision was presently not applicable to Air India, thereby implying that foreign airlines could not invest in Air India. It has now been decided to do away with this restriction and allow foreign airlines to invest up to 49% under approval route in Air India 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 Indian National.
Construction Development: It has been decided to clarify that real-estate broking service does not amount to real estate business and is, therefore, eligible for 100% FDI under the automatic route.
Power Exchanges: Extant policy provides for 49% FDI under automatic route in Power Exchanges registered under the Central Electricity Regulatory Commission (Power Market) Regulations, 2010. However, FII/FPI purchases were restricted to secondary market only. It has now been decided to do away with this provision, thereby allowing FIIs/FPIs to invest in Power Exchanges through the primary market as well.
Pharmaceuticals: FDI policy on Pharmaceuticals sector inter-alia provides that definition of the medical device as contained in the FDI Policy would be subject to amendment in the Drugs and Cosmetics Act. As the definition as contained in the policy is complete in itself, it has been decided to drop the reference to Drugs and Cosmetics Act from FDI policy. Further, it has also been decided to amend the definition of ‘medical devices’ as contained in the FDI Policy.
Regarding audit firms: The extant FDI policy does not have any provisions in respect of specification of auditors that can be appointed by the Indian investee companies receiving foreign investments. It has been decided to provide in the FDI policy that wherever the foreign investor wishes to specify a particular auditor/audit firm having an international network for the Indian investee company, then an audit of such investee companies should be carried out as joint audit wherein one of the auditors should not be part of the same network.