Monday, Aug 08, 2022

Union Cabinet Approves 100% FDI In Single-Brand Retail Without Govt Approval, Up To 49% In Air India

Existing FDI policy allows 49% FDI under automatic route in Single Brand Retail, and FDI beyond 49% through government approval route

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The Union Cabinet on Wednesday approved an icremental change allowing 100 per cent Foreign Direct Investment in single-brand retail without any government approval. Now investors don't need to go through Foreign Investment Promotion Board (FIPB).

The Union Cabinet also allowed foreign airlines to invest up to 49 per cent in Air India.

Existing FDI policy on Single Brand Retail Trading 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.

The decision was taken during the Cabinet meeting chaired by Prime Minister Narendra Modi here.

"The approval through automatic route with respect to single brand retail trading will quicken the FDI clearance process as no prior government approval would be required. We expect that FDI in single brand retail trading sector will now gain further momentum due to the process not being subject to regulatory scrutiny and approval process," said Rabindra Jhunjhunwala, Partner, Khaitan & Co.

It has also been decided to permit single brand retail trading entity to set off its incremental sourcing of goods from India for global operations during initial 5 years against the mandatory sourcing requirement of 30% of purchases from India. 

"Incremental sourcing will mean the increase in terms of value of such global sourcing from India for that single brand (in INR terms) in a particular financial year over the preceding financial year. After completion of this 5 year period, the SBRT entity shall be required to meet the 30% sourcing norms directly towards its India’s operation, on an annual basis.

Though the retail change brought in by the government has been incremental, the major decision was allowing "Foreign airlines to invest up to 49 per cent under approval route in Air India ".

As per the policy, foreign airlines are allowed to invest under government approval route in Indian companies operating scheduled and non-scheduled air transport services, up to the limit of 49 per cent of their paid-up capital. However, the provision was 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 per cent under approval route in Air India," it added.

This condition was relaxed subject to certain conditions.

The statement said that foreign investment in Air India including that of foreign Airline (s) shall not exceed 49 per cent either directly or indirectly and "substantial ownership and effective control of Air India shall continue to be vested in Indian National".

The government said that the decision would help provide ease of doing business and also lead to larger FDI inflows contributing to growth of investment, income and employment.