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 -
- 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.
