Cabinet okays 100% FDI in single brand retail under automatic route

Cabinet okays 100% FDI in single brand retail under automatic route

The Centre on Wednesday eased foreign direct investment norms across the sectors and opened the floodgates for single brand retail allowing 100% FDI in India without any government approval.  

The move is seen as an attempt to arrest unemployment and a slowdown in economic growth.

Until now, FDI up to 49% was permitted under automatic route in single brand retail but beyond that limit, the government nod was required.

Through a Cabinet decision, the government also relaxed norms for a mandatory sourcing requirement of 30% of purchases from India which had apparently slowed the FDI process in the sector that accounts for 10% of country's GDP and about 8% of employment.

Besides, it allowed foreign airlines to own up to 49% share in Air India. Until now, the FDI policy allowed foreign airlines to buy 49% in Indian carriers but Air India was kept out of it.

The other sectors where 100% FDI was allowed through automatic route included construction development and realty broking services. The FDI rules for foreign institutional and portfolio investors eased allowing them to invest in power exchange through primary market.

Instead of a mandatory 30% local sourcing in single brand, the Cabinet decided to permit the single brand entity to begin "incremental" sourcing of goods from India for global operations. This means a non-resident entity desiring to set up single brand would need to increase sourcing from India every year over and above its previous year's sourcing. This incremental sourcing from India would continue for five years beginning April 1 of the year of the opening of first store by the entity.

However, after the completion of five years, those entities would be required to meet the 30% sourcing norms directly towards its India's operation, on an annual basis. Simply put, the local sourcing norms do not have any cap for five years from the date of setting up of a business on Indian soil. Earlier the 30% norm started with the beginning of the business.

The decision was hailed by India Inc which said it would facilitate ease of doing business in the country as not much time would be wasted waiting for approvals. However, it is likely to benefit only the big foreign single-brand retailers and multinationals, said CAIT, IKEA, Apple, Nike are some of the big single brand retailers in Inida.

"It's a serious matter for small businesses. It is a pity that instead of formulating policies for the welfare, upgrade and modernisation of existing retail trade, the government is more interested in paving way for the MNCs to control and dominate the retail trade of India," CAIT said.

"These are intended to liberalise and simplify the FDI policy so as to provide ease of doing business in the country. In turn, it will lead to larger FDI inflows contributing to growth of investment, income and employment," a government statement said after the Cabinet decision.

The move comes in the wake of the official projection of a slowdown in India's economy in the financial year ending March 31 and two back-to-back reforms – GST and demonetisation – halting job creation.

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