January 11, 2018
1 year

Why in news?

The Centre has recently eased several FDI norms.

What are the highlights?

  • 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.
  • Power sector -  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 -
  1. foreign investment(s) in Air India, including that of foreign airline(s), shall not exceed 49% either directly or indirectly
  2. 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.
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