NEW DELHI — Ahead of the World Economic Forum Jan. 23 in Davos, which Prime Minister Narendra Modi will attend, the Union Cabinet Jan. 10 opened up Air India for foreign investors and brought in changes in key sectors by allowing 100 percent foreign investment in single brand retail and construction development through the automatic route.
The decisions, made at a meeting of the Union Cabinet chaired by Modi and intended to liberalize and simplify the foreign direct investment policy to provide ease of doing business, drew sharp criticism from both the opposition and trade bodies.
However, the government contended that the move would "lead to larger FDI inflows contributing to growth of investment, income and employment."
The Jan. 10 decision marked a key change in the aviation industry where the government already allows up to 49 percent FDI in private carriers. There was a restriction that foreign airlines could not invest in the loss-making Air India.
"It has now been decided to do away with this restriction and allow foreign airlines to invest up to 49 percent under approval route in Air India subject to the conditions that foreign investments in Air India including that of foreign airlines shall not exceed 49 percent either directly or indirectly," an official statement said.
It added that substantial ownership and effective control of the national carrier shall continue to be with "vested in Indian national."
The Cabinet also approved 100 percent FDI in single brand retail trading, tweaking its present policy of allowing only 49 percent foreign investment in the sector through automatic route and the rest through government approval.
It also gave a five-year holiday for foreign investors from the mandatory 30 percent of local purchases. But after that, they will be required to meet 30 percent of sourcing norms directly towards its India operations on an annual basis.
The Cabinet also decided to allow 100 percent FDI in construction development relating to building townships, housing, infrastructure and real estate broking services.
"It has been decided to clarify that real estate broking service does not amount to real estate business and is therefore eligible for 100 percent FDI under automatic route."
Making changes in the sector relating to power exchanges, the government removed the restrictions on investment by foreign institute investors and portfolio investors to invest in power exchanges through the primary market as well. Under the present policy, FII and FPI purchases were restricted to the secondary market only.
The Congress and the Communist Party of India (Marxist) slammed the government move on Air India, saying it would only lead to the national carrier going into the hands of a foreign airline.
Former union minister Anand Sharma said the government should come clear on the Air India deal as to whether its assets "worth lakh of crores of rupees" and its route rights would also go to the investor.
He said the United Progressive Alliance government had consciously kept Air India out of the purview of FDI, though it had allowed 49 percent FDI in the civil aviation sector.
The CPI-M said the Modi government was now moving towards handing Air India to a foreign airline.
"The government should heed the recommendation of the Parliamentary Standing Committee on Transport, Tourism and Culture, which has asked the government to review its decision on privatization of Air India and provide five years to revive the airline with its debt written off."
There was support for the Air India move. Pervez Damania, a former director of the now defunct Kingfisher Airlines, welcomed it saying the "government has no business to be in flying."
P.N. Vijay, a market analyst, said the decision was "not good enough." "It should be 100 percent FDI in Air India."
On allowing 100 percent FDI through the automatic route in single brand retail, the CPI-M said the move portends the Modi government's intentions of "moving towards allowing FDI in multi-brand retail trade." It warned of grave consequences for the domestic retail trade.
However, Ananda Sharma termed the FDI in retail "a cosmetic change" and "minor tweak."
"I don't think it’s going to make much change because almost all the major brands of the world are already here as 100 percent FDI was already allowed. This is done perhaps for the prime minister to make a statement at Davos."
Both Congress and the CPI-M reminded the Bharatiya Janata Party that it had opposed the entry of foreign companies into retail trade earlier and it has now "hypocritically reversed its position."
Calling it a "serious matter" for small businesses, the Confederation of All India Traders strongly opposed the FDI in single brand retail.
Condemning the Modi government's "love for MNCs," CAIT Secretary General Praveen Khandelwal said the move would facilitate easy entry of multi-national companies in retail trade and leave a large number of people jobless.
"It's a serious matter for small businesses. It is a pity that instead of formulating policies for the welfare, upgradation and modernization of existing retail trade, the government is more interested in paving the way for the MNCs to control and dominate the retail trade of India."
Modi will be the first prime minister in 20 years to participate in the annual World Economic Forum in Davos, where world leaders and top industrialists and businessmen meet. The four-day event begins Jan. 23.