In a relaxation of norms that has made India "the most open economy in the world for FDI", India flung its door open to 100 per cent foreign direct investment across nine key sectors. In a move that probably shook the global markets, the Modi Sarkar made entry and control of foreign investor in several sectors, a cakewalk.
A statement from the PM's Office read, "The Centre has radically liberalised the FDI regime, with the objective of providing 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 would be under automatic approval route, except a small negative list. With these changes, India is now the most open economy in the world for FDI."
Among other decisions, 100 per cent FDI has been permitted in teleports, direct-to-home, cable networks and mobile TV under the automatic route. 100 per cent FDI has also been permitted under the government approval route for trading, including through e-commerce, for food products manufactured or produced in India. The country's FDI inflows this year increased to $55.46 billion as compared to last year's $36.04 billion.
At present, 49 per cent FDI in defence is allowed under the automatic route, while FDI above 49 per cent is permitted through government approval on case-to-case basis, wherever it is likely to result in access to modern and ‘state-of-the-art’ technology in the country. The new FDI limit for defence sector has also been made applicable to manufacturing of small arms and ammunitions covered under the Arms Act 1959. More than 49 per cent FDI has been permitted, under the government approval route, however, the condition of access to state-of-the-art-technology, has been done away. Local sourcing norms for single-brand retail trading are also relaxed for products seen as having 'state-of-the-art' and 'cutting edge' technology.
The Centre also decided to allow 100 per cent FDI under automatic route in brownfield airport projects as opposed to the current norm of 74 per cent under automatic route, and beyond 74 per cent under government route. The FDI limit for scheduled air transport service/domestic scheduled passenger airline and regional air transport service has also been raised to 100 per cent, of which up to 49 per cent would be allowed under automatic route and beyond 49 per cent through government approval. For NRIs, 100 per cent FDI will continue to be allowed under the automatic route, but the FDI limit for foreign airlines has been capped at 49 per cent for both scheduled and non-scheduled air-transport services.
The requirement of ‘controlled conditions’ for FDI in animal husbandry, pisciculture, aquaculture and apiculture has been removed. At present, 100 per cent FDI in these activities is allowed under the automatic route under controlled conditions.
For establishment of branch office or liaison office or any other place of business in India if the principal business of the applicant is defence, telecom, private security or information and broadcasting, it has been decided that approval of RBI or separate security clearance would not be required in cases where FIPB approval has already been granted.
The changes are welcomed by market experts, as the allowance of FDI in food processing is seen as a positive step for farmers. "The policy change will definitely benefit farmers as it will enable them to get better rates for the produce and at the same time, overall reduction in wastage of food products for the country. It seems a win-win situation for consumer as well as the farmers, but we need to wait for the fineprint of the detailed guidelines to check the kind of conditions attached," Devraj Singh, Executive Director -Tax & Regulatory Services, EY said.
