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Narendra Modi Govt Allows 100% FDI in Single-Brand Retail, Opens Door to Global Players Like Ikea

A shopper walks out of store at a mall in Mumbai on July 10, 2017. (Representative image/Reuters)

A shopper walks out of store at a mall in Mumbai on July 10, 2017. (Representative image/Reuters)

The nod to 100% FDI in single-brand retail comes days before Prime Minister Narendra Modi’s historic visit to the World Economic Forum in Davos, Switzerland.

New Delhi: The Narendra Modi government has approved 100% foreign direct investment (FDI) for single-brand retail via direct route, removing all hurdles for investment and opening the economy for global players like Ikea.

The decision was taken during a Cabinet meeting chaired by Prime Minister Narendra Modi on Wednesday, days before his historic visit to the World Economic Forum in Davos, Switzerland, where India is the focus country this year.

Earlier, only 49% FDI was allowed through automatic route and government approval was required for 100% FDI in retail.

Apart from FDI in single-brand retail, the government has also allowed foreign airlines to invest up to 49% in Air India under approval route, paving the way for divestment of the state-run carrier. This will help the government sell off its stake in the debt-ridden airline. The government clarified that 51% stake in Air India will remain with an Indian player.

Retail stocks such as Future Retail, V2 Retail, Avenue Supermarts, Monte Carlo Fashions and Aditya Birla Fashion gained 1-6 percent on Wednesday, while aviation stocks like Jet Airways, SpiceJet, Interglobe Aviation gained between 1.5 to 3.5 percent, moneycontrol.com reported.

Executive Director of Monte Carlo Fashions Sandeep Jain, however, said the move may not affect Indian players much. “It makes the process easier certainly, but the brands which want to be there in India are already there,” he told CNBC TV18.

The Cabinet allowed overseas investors to invest 100 per cent FDI in single brand retail trading and construction development without any government approval, an official statement said.

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.

Further, it has clarified that real-estate broking service does not amount to real estate business and is therefore, eligible for 100 per cent FDI under automatic route.

The cabinet also decided to allow FIIs/FPIs to invest in power exchanges through primary market as well. So far 49 per cent FDI was permitted 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.

India has replaced China as the fastest growing major retail market, supported by expanding economy, coupled with booming consumption rates, urbanizing population and growing middle class.

In another change, it has now been decided that issue of shares against non-cash considerations like pre incorporation expenses, import of machinery etc shall be permitted under automatic route in the case of sectors under automatic route.

The government had in 2016 relaxed FDI norms in over a dozen sectors, including defence, civil aviation, construction and development, private security agencies, real estate and news broadcasting.

Foreign investments are considered crucial for India, which needs around $1 trillion to overhaul its infrastructure such as ports, airports and highways to boost growth.

Foreign investments will help improve the country’s balance of payments situation and strengthen the value of the rupee against global currencies, especially the US dollar.

(With agency inputs)