World Economy

India Makes ‘Radical’ Changes in FDI Policy

100% FDI has been allowed in brownfield airport projects.100% FDI has been allowed in brownfield airport projects.

The Indian cabinet on Wednesday gave its approval to the “radical” changes in the foreign direct investment regime that had sought to increase the foreign direct investment to 100% in defense and liberalized the policy for several other sectors.

On June 20, the government had “radically liberalized” the FDI regime with the objective of providing major impetus to employment generation in India, PTI reported.

This was the second big reform after some major changes were announced in November 2015.

The changes introduced in the policy included increase in sectoral caps, bringing more activities under automatic route and easing of conditionalities for foreign investment.

“The Union Cabinet chaired by Prime Minister Narendra Modi has given its ex-post facto approval for the FDI policy amendments announced by the government on June 20, 2016.

“The FDI policy amendments are meant for liberalizing and simplifying the FDI policy so as to provide ease of doing business in the country, leading to larger FDI inflows contributing to growth of investment, incomes and employment,” an official statement said.

  Automatic Route and Beyond

As per the liberalized norms, foreign investment in defense sector is now permitted up to 100%.

Earlier policy permitted 49% FDI participation in the equity of a company under automatic route. FDI above 49% was permitted through approval on case to case basis, wherever it is likely to result in access to modern and ‘state-of-art’ technology in the country.

With a view to aid in modernization of the existing airports to establish a high standard and help ease pressure on the existing airports, 100% FDI under automatic route has been allowed in brownfield airport projects.

In case of single brand retail trading, the government has relaxed local sourcing norms for up to three years, with prior government approval, for entities undertaking trading of products having ‘stateofart’ and ‘cutting edge’ technology.

For private security agencies, FDI up to 49% is now permitted under automatic route and beyond that and up to 74%, government approval is required.

FDI ceiling in sectors like teleports, Direct to Home, Cable Networks, mobile TV and Headend-in-the Sky Broadcasting Service has been increased to 100%.

Norms for foreign investment in pharmaceutical sector too have been liberalized.

Also, 100% FDI under automatic route for trading, including through e-commerce has been permitted in respect of food products manufactured and/or produced in India.

The government said measures undertaken by it has resulted in increased FDI inflows at $55.46 billion in 2015-16, as against $36.04 billion in 2013-14.