Modi eases rules for foreign investors as India growth slows

Foreign airlines will now be able to invest in Indian state carrier Air India, as PM Narendra Modi eases restrictions on foreign direct investment.
Foreign airlines will now be able to invest in Indian state carrier Air India, as PM Narendra Modi eases restrictions on foreign direct investment. PHOTO: REUTERS

NEW DELHI (BLOOMBERG) - Indian Prime Minister Narendra Modi eased restrictions on foreign direct investment across several sectors, including allowing overseas airlines to invest in state carrier Air India Ltd., in a bid to revive growth in Asia's third largest economy.

Foreign carriers can buy up to 49 per cent in the loss-making national airline, the government said in a statement. In a move aimed at further improving ease of doing business, the cabinet also allowed single-brand retailers to start local operations without federal approval and foreigners can own up to 100 per cent in real estate brokerages.

Modi is trying to lure foreign capital to revive economic growth that is seen expanding at the slowest pace since he came to power in 2014. The sale of Air India will be one of the key reforms in recent years as the airline is struggling with a debt load of US$7.6 billion and is surviving on a taxpayer bailout.

"By increasing the limits you are sending out a signal that you are moving in the direction of opening up the Indian economy to foreign investment," Madan Sabnavis, chief economist at Care Ratings Ltd. said by phone.

"How much actual investment comes depends on other conditions in the market."

Stalled Reforms

After taking power with the biggest mandate in three decades, the Bharatiya Janata Party has wrestled with opposition parties that have blocked a Bill to make it easier to acquire land for factories.

The government has been facing severe criticism over a chaotic roll out of a national sales tax that resulted in supply disruptions and demand slowdown.

Foreign direct investment into India rose 17 per cent in the April-September period to US$21 billion from a year ago, according to data provided by the commerce ministry. Since coming to power, Modi relaxed rules on investment in defence, construction, insurance, pension and other sectors, resulting in highest ever foreign investment inflows in the year ended March 2017.

Japan's Fast Retailing Co., operator of the Uniqlo casual-wear brand, could benefit from the change in rules. Asia's largest clothing chain had submitted an application in November seeking approval to do business in the country under the Uniqlo brand.

Fast Retailing did not offer any immediate comment to the change in policy.

The easing of rules for Air India would allow foreign airlines to buy a minority stake in a carrier with about 150 planes in its fleet, and bilateral landing and parking slots at lucrative airports from London to New York.

Only IndiGo, India's biggest carrier which is operated by InterGlobe Aviation Ltd., has expressed interest to buy Air India so far.