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The Modi government on Monday
announced what it termed a “radical liberalisation” of the Foreign Direct
Investment (FDI) regime by easing norms for a host of important sectors,
including defence, civil aviation and pharmaceuticals, opening them up for complete
foreign ownership.
Ø The government decision to liberalise conditions allowing 100 per
cent FDI in the defence sector may result in at least some foreign entities
setting up subsidiaries in India, said industry experts. The government
on Monday removed the condition of “state-of-the-art” technology for permitting
100 per cent FDI in the defence sector. The new condition is that the companies
wanting to invest 100 per cent FDI and open a subsidiary needs to bring in only
“modern” technology. The new rule is 49 per cent FDI in defence under
the automatic route. Foreign investment beyond that would be permitted through
government approval route in cases resulting in “modern” technology. The FDI
limit for the defence sector has been made applicable to manufacturing of small
arms and ammunition covered under the Arms Act, 1959.
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Opening up foreign investments in
the civil aviation sector, the Union government on Monday allowed overseas
entrepreneurs, other than airlines, to bring in up to 100 per cent foreign
direct investment (FDI) to set up an airline in India. However, foreign
airlines will be permitted to invest only up to 49 per cent in an airline.
At present, foreign investment in a scheduled or regional air transport service
or domestic scheduled passenger airline is permitted up to 49 per cent. It
has now been decided to raise this limit to 100 per cent, with FDI up to 49 per
cent permitted under the automatic route and beyond 49 per cent through
government approval. 100 per cent FDI is now allowed in airports,
airlines, ground handling, flying training institutes and maintenance, repair
and overhaul (MRO) units. Though equity holding of foreign airlines is
still limited to 49 per cent, a foreign airline can join hands with its sovereign
fund or private investors and set up a 100 per cent foreign-owned airline in
India. Foreign airlines, at present, own stake in Jet Airways, Vistara
and AirAsia India. In 2013, Jet Airways sold a 24 per cent stake to Etihad
Airways. Vistara is a joint venture between Tata Sons (51 per cent) and
Singapore Airlines (49 per cent). AirAsia Bhd owns a 49 per cent stake in
AirAsia India and Tata Sons 51 per cent.
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