The decision would help provide ease of doing business and also lead to larger FDI inflows contributing to growth of investment, income and employment.
The government on Wednesday relaxed FDI norms in various sectors such as single brand retail and allowed foreign airlines to invest up to 49 per cent in Air India.
The decision was taken during the Cabinet meeting chaired by Prime Minister Narendra Modi in New Delhi.
The Cabinet allowed overseas investors to invest 100 per cent FDI (foreign direct investment) in single brand retail trading and construction development without any government approval, an official statement said.
"Foreign airlines are allowed to invest up to 49 per cent under approval route in Air India," the statement said.
As per the policy, foreign airlines are allowed to invest under government approval route in Indian companies operating scheduled and non-scheduled air transport services, up to the limit of 49 per cent of their paid-up capital.
However, the provision was not applicable to Air India, thereby implying that foreign airlines could not invest in Air India.
"It has now been decided to do away with this restriction and allow foreign airlines to invest up to 49 per cent under approval route in Air India," it added.
This condition was relaxed subject to certain conditions.
The statement said that foreign investment in Air India including that of foreign Airline (s) shall not exceed 49 per cent either directly or indirectly and "substantial ownership and effective control of Air India shall continue to be vested in Indian national".
The government said that the decision would help provide ease of doing business and also lead to larger FDI inflows contributing to growth of investment, income and employment.
Further it has clarified that real-estate broking service does not amount to real estate business and is therefore, eligible for 100 per cent FDI under automatic route.
The cabinet also decided to allow FIIs/FPIs to invest in power exchanges through primary market as well.
So far 49 per cent FDI was permitted under automatic route in power exchanges registered under the Central Electricity Regulatory Commission (power market) Regulations, 2010.
However, FII/FPI purchases were restricted to secondary market only.
Photograph: Dado Ruvic/Reuters