FDI Policy Change 10th January 2018

In a fresh round of FDI liberalisation, the government has made FDI in several sectors including single brand retail under automatic route and allowed 49% FDI in Air India disinvestment. Following are the main changes brought on 10th of January 2018.

FDI in Single Brand Retail, construction and power exchanges were made through automatic route. This means there is less scrutiny of the investment made in these sectors.

In the case of Single Brand Retail, the 30% a five-year time period is permitted to achieve the 30% local sourcing obligation.

FDI in the areas of medical devices and audit firms associated with companies receiving overseas funds were also eased.

The FDI Policy allows 49% foreign investment in Air India under the approval route. As per the policy, foreign investment(s) in Air India including that of foreign airline(s) shall not exceed 49 per cent either directly or indirectly. Additionally, the policy requires that substantial ownership and effective control of Air India shall continue to be vested in Indian National. The increased 49% for Air India as it being a public-sector entity, will encourage fund injection to the debt-ridden company.

In the real estate sector, the real-estate broking service are not part of the real estate business” according to the new policy, and is therefore, eligible for 100 per cent FDI under automatic route.

In the case of power exchanges, the new policy allows FPIs can invest in power exchanges through primary market as well. The current policy allows 49% foreign investment under the automatic route; but FPI were allowed only through the secondary market.

The FDI Policy insists joint audit in companies with foreign investment to promote participation of Indian audit firms.

The audit sector is dominated by big foreign firms. As per the FDI policy for foreign investment, the second auditor cannot be part of the global network of the first auditor. The existing foreign investment policy does not have any stipulation about the appointment of auditors by Indian companies that receive foreign investments. This policy change will promote Indian audit firms.

January 21, 2018
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