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Last updated: 11 Jan, 2018  

FDI.9.Thmb.jpg Industry hails FDI relaxations, traders jittery

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SME Times News Bureau | 11 Jan, 2018

India Inc on Wednesday hailed the amendments in the Foreign Direct Investment (FDI) policy that aims to promote foreign capital inflow in sectors like single brand retail, civil aviation and construction.

As per the Union cabinet's decision, changes to FDI policy will attract foreign investments and create employment.

"The relaxations in FDI policy announced by the Cabinet today are most welcome and would certainly lead to further increase in foreign investment inflows," said Chandrajit Banerjee, Director General of the Confederation of Indian Industry.

"Today's announcement includes multiple measures targeted at specific sectors where opportunities exists," said Banerjee.

EY India's Executive Director, Tax and Economic Policy Group Dev Raj Singh said: "In line with the intent of ease of doing business and with a view to attract larger FDI inflows, the Government has further liberalised the FDI Policy in various sectors like single brand retail trading, construction development and civil aviation."

On sector-specific basis, 100 per cent foreign investment has been allowed in single brand retail trading and construction development, while national carrier Air India was opened up for FDI participation.

Besides, the government also decided that foreign institution investors and portfolio investors be allowed to invest in power exchanges through primary market and amended the definition of "medical devices" in its FDI policy.

Subsequently, the new FDI norms related to single brand retail drew mixed reactions with some industry observers lauding the move while traders' bodies opposed it as "a serious matter for small businesses".

"This is another positive step from the government towards ease of doing business in India. By allowing 100 per cent FDI in single brand retail under the automatic route, foreign entrants will find it easier to set up operations in the country," said Dhanraj Bhagat, Partner, Grant Thornton India LLP.

However, the Confederation of All India Traders (CAIT) strongly condemned the government's decision stating that the step will affect smaller businesses by paving way for the foreign brands to dominate the country's retail trade.

"The CAIT strongly opposes the move to allow 100 per cent FDI in single brand retail through automatic route as it will facilitate easy entry of multinational corporations in retail trade of India and will also violate poll promise of BJP," the traders' body said in a statement.

"It's a serious matter for small businesses. It is a pity that instead of formulating policies for the welfare, upgradation 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," it added.

Rajat Wahi, Partner, Deloitte India, said: "Global brands across different categories, from apparel to electronics to accessories will be aided through this, providing further options to Indian consumers and improving India's ranking in ease of doing business."

On the decision to open up Air India for FDI up to 49 per cent, independent aviation expert Amrit Pandurangi said: "Air India is not an easy transaction... so 49 per cent is good, but may not be good enough to make it attractive. They need to first sort out a number of issues on Air India's financial debt, people-related issues."

In addition, Cabinet's decision to allow 100 per cent FDI in construction development related to building townships, housing, infrastructure and real estate broking services was welcomed by the industry.

"FDI in construction is expected to provide a significant boost to the real estate sector," said Ashwin Sheth, Chairman and Managing Director, Sheth Group.

"The Government's ambitious projects like 'Housing For All By 2022' and 'Construction of 100 Smart Cities' will now flourish owing to the substantial participation by the foreign investors," Sheth added.

According to Abhishek Goenka, Leader, Direct Tax, PwC India, the clarification that brokerage services are not real estate business, and hence, eligible for 100 per cent FDI under the automatic route was long overdue.

"The industry was saddled with differing views and interpretations on this count, and this should now ease the pain for existing international players, as well as provide clarity for future joint ventures and wholly owned presence in India," Goenka said.

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