Besides, approving 100 per cent foreign investment in single brand retail trading, 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.

The decisions, taken at a meeting of the Union Cabinet chaired by Prime Minister Narendra Modi, were intended to liberalise and simplify the FDI policy to provide ease of doing business.

"In turn, it will lead to larger FDI inflows contributing to growth of investment, income and employment," an official statement said.

The present FDI policy on single brand retail trading allows only 49 per cent FDI under automatic route and FDI beyond 49 per cent and up to 100 per cent through government approval route.

"It has now been decided to permit 100 per cent FDI under automatic route. It has been decided to permit single brand retail trading entity to set off its incremental sourcing of goods from India for global operations during initial five years, beginning April 1 of the year of the opening of first store against the mandatory sourcing requirement of 30 per cent of purchases from India," the statement said.

The Cabinet also decided to allow 100 per cent 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 per cent FDI under automatic route."

Under the present policy, foreign airlines are allowed to invest under government approval route in the capital of Indian companies operating scheduled and non-scheduled air transport services, up to the limit of 49 per cent of their paid-up capital.

However, this was not applicable to Air India, thereby implying that foreign airlines could not invest in the national carrier owned fully by the government.

"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 subject to the conditions that foreign investments in Air India including that of foreign airlines shall not exceed 49 per cent either directly or indirectly."

Making changes in the sector related to power exchanges, the government removed the restrictions on investment by foreign institute investors and portfolio investors to invest in power exchanges through primary market as well.

With inputs from IANS