Radical reform: India allows 100% FDI in key sectors

Indian government allows 100 per cent foreign direct investment in almost every sector including defence, food, pharmaceuticals Photograph:( Getty )

New Delhi Jun 20, 2016, 04.17 PM (IST)
The Indian government on Monday radically liberalised the foreign direct investment (FDI) regime with the objective of providing major impetus to employment and job creation in India, as 100 per cent FDI was approved in the sectors of aviation, food, defence and pharmaceuticals.  
The decision was taken at a high-level meeting chaired by Prime Minister Narendra Modi on Monday.  
Modi hailed a sweeping liberalisation of rules on foreign direct investment on Monday, saying they will make Asia's third-largest economy the most open in the world.  
"Key reform decisions were taken at a high level meeting chaired by the PM, which makes India the most open economy in the world for FDI," Modi said in a tweet.  
In a second tweet, he said the changes would provide a "major impetus to employment and job creation in India."  
This is the second major reform after the last radical changes announced in November 2015. Now most of the sectors will be under the automatic approval route except a small negative list.  
Launching the second set of liberalisation of foreign investments, the government relaxed the norms in host of sectors including single brand retail trade (SBTR), broadcasting carriage services, private security agencies and animal husbandry. 
Welcoming the landmark decision to open up the FDI regime, the Confederation of Indian Industry (CII) said the relaxation of local sourcing norms under single brand retail trading for advanced technology products would encourage global brands to build up their participation in the country. 

"Taken together, the FDI rules announced today will attract big new investments across key sectors such as food processing, defence production, pharmaceuticals and civil aviation, among others, thereby adding to growth and employment," Director General of CII Chandrajit Banerjee said in a statement. 

Changes introduced in the policy include increase in sectoral caps, bringing more activities under the automatic route and easing of conditionality for foreign investment.  
These amendments seek to further simplify the regulations governing FDI in the country and make India an attractive destination for foreign investors.   
It was decided to permit 100 per cent FDI under government approval route for trading, including through e-commerce, in respect of food products manufactured or produced in India.  
In the defence sector, foreign investment beyond 49 per cent has now been permitted through government approval route, in cases resulting in access to modern technology in the country or for other reasons to be recorded. The condition of access to 'state-of-the-art' technology in the country has been done away with.  
FDI limit for defence sector has also been made applicable to Manufacturing of Small Arms and Ammunitions covered under the Arms Act, 1959, of India.  
For private security agencies, FDI up to 49 per cent permitted under automatic route and FDI beyond 49 per cent and up to 74 per cent will be permitted through the government approval route.  
The extant FDI policy on pharmaceutical sector provides for 100 per cent FDI under automatic route in greenfield pharma and FDI up to 100 per cent under government approval in brownfield pharma.  
The extant policy on airports permits 100 per cent FDI under the automatic route in Greenfield Projects and 74 per cent FDI in Brownfield Projects under automatic route.  
With a view to aid in modernisation of the existing airports to establish a high standard and help ease the pressure on the existing airports, it has been decided to permit 100 per cent FDI under automatic route in Brownfield Airport projects.  
As per the existing FDI policy, foreign investment up to 49 per cent is allowed under automatic route in scheduled air transport service/domestic scheduled passenger airline and regional air transport service.  
It has now been decided to raise this limit to 100 per cent, with FDI up to 49 per cent permitted under automatic route and FDI beyond 49 per cent through government approval.  
Monday's amendments to the FDI policy are meant to liberalise and simplify 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.   
India's economic affairs secretary Shaktikanta Das said the manufacturing sector and job generation will get a boost with dual clearances no longer needed.  

"With this liberalisation, we expect manufacturing activity to come in, more activity in defence products. The driving force behind the whole thing is that all this investment should facilitate creation of jobs," he told reporters here. 
The decision on FDI liberalisation was a follow-up to the decisions which were taken last November when a whole lot of reforms were announced.   

"Wherever approval is given by the regulator, the companies will not need to the approach the Foreign Investment Promotion Board (FIPB) for clearance," he said. 
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