Cabinet nod for 100% FDI in single-brand retail via automatic route

Saul Bowman
January 13, 2018

Foreign companies will now be permitted to automatically invest in and own 100 per cent of their Indian operations in single-brand retail stores such as Ikea or H&M, which stock their own products.

India cleared a proposal yesterday to allow foreign investors to own up to a 49 per cent stake in state-run carrier Air India, paving the way for global airlines to bid for the loss-making flagship carrier.

On similar lines, EY India's executive director (tax & economic policy) Dev Raj Singh said the move will slash the time taken for a foreign investor to set up a single brand retail.

Air India had total debt of about Rs48,877 crore at the end of March 2017-Rs17,360 crore of aircraft loans and Rs31,517 crore of working capital loans. However, it has now been chose to permit 100 percent FDI under automatic route for SBRT. However, the big-bang change that the government is unwilling to take on is allowing foreigners into multi-brand retail - that can make players like Walmart, Metro Cash and Carry or Carrefour your local supermarket.

Between April and September of FY18, FDI in India reportedly surged by 17% to $25.35 Bn. "Now being in the government, it has hypocritically reversed its position".

While India has seen its economy slowing recently, it has managed to secure a lot of foreign capital even without the new opportunities in place for entrepreneurs from overseas. "But I don't think this move alone will open the floodgates in foreign investment in retail because whoever wanted approval in single-brand retail so far got it without much difficulty". However, foreign investors' purchases were restricted to the secondary market only.

"The (Narendra) Modi government had already chose to push Air India for wholesale privatisation".

Under the relaxed norms, a foreign retailer will be able to get credit from incremental increase in sourcing for its global operations from India towards the mandatory 30 per cent local sourcing requirement for its business in the country.

"Cases under the government approval route, also requiring security clearance with respect to countries of concern, will continue to be processed by concerned administrative department or ministry". "Further, allowing incremental sourcing undertaken by overseas group companies to be counted towards the 30 percent sourcing commitment for the initial five years will provide the single brand retail trading companies the flexibility and time to align their retail and sourcing business", said Goldie Dhama, Partner - Regulatory, PwC India.

Senior Congress leader Anand Sharma said that 100% FDI in single-brand retail was notified during the previous UPA government and the only change made was to allow it through the automatic route.

Condemning the Modi government's "love for MNCs", CAIT Secretary General Praveen Khandelwal said the move would facilitate easy entry of MNCs in retail trade and leave a large number of people jobless. Under the existing policy, foreign airlines were permitted to invest up to the 49% limit, under the approval route in Indian companies operating non-scheduled and scheduled air transport services.

Other reports by

Discuss This Article