FDI policy liberalised; fgn airlines allowed 49% stake in AI


"A cabinet meeting, chaired by Prime Minister Narendra Modi, gave investors the go-ahead to invest 100 per cent in single-brand retail and other sectors without government's approval, " Government Spokesman, Frank Noronha, said. It received a $5.8 billion in bailout funds from the taxpayer, but still needs more capital to become profitable.

While there have been efforts by previous governments to divest part of all of the state's stake in Air India, none has shown as much commitment and intensity as the current National Democratic Alliance.

With an eye on higher foreign inflows, the government has liberalised the foreign direct investment (FDI) policy in various sectors such as single-brand retail, real estate broking and civil aviation. The sudden changes may help India's rank for ease of doing business go up a few notches and cash inflows may make things look better, but what about the resultant and adverse consequences in the long term for the unprotected Indian domestic market?

Regarding the liberalisation in the construction development segment, the government has made a decision to clarify that real estate broking service does not amount to real estate business and is therefore, eligible for 100 per cent FDI under automatic route. It has said that allowing 49% foreign investment is not the best of the solutions for ending the troubles with the National Carrier.

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In the case of medical devices, the government has permitted a wide range of items that can attract up to 100 per cent FDI via the automatic route.

The Union Cabinet has given its approval to a number of amendments in the FDI Policy.

Currently, the policy provides for 49 percent FDI under automatic route in power exchanges. Commenting on this strategic move by the government, commerce minister Suresh Prabhu said that this Liberalization move was to gather more investments, and develop the economy of India. However, foreign investors' purchases were restricted to the secondary market only. "This remains an unfinished agenda". Earlier also 100 per cent FDI was allowed in the segment, but it required government approval.