Cabinet approves recent changes in FDI policy

Cabinet on August 31 gave its approval to the “radical” changes in the foreign direct investment regime that had sought to increased FDI to 100 percent in defence and liberalised the policy for several other sectors. On June 20, the government had “radically liberalised” the FDI regime with the objective of providing major impetus to employment generation in India. This was the second big reform after some major changes 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 liberalising 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.

As per the liberalised norms, foreign investment in defence sector is now permitted up to 100 percent. Earlier policy permitted 49 percent FDI participation in the equity of a company under automatic route. FDI above 49 percent 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 modernisation of the existing airports to establish a high standard and help ease pressure on the existing airports, 100 percent 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 ‘state-of-art’ and ‘cutting edge’ technology.

For private security agencies, FDI up to 49 percent is now permitted under automatic route and beyond that and up to 74 percent, government approval is required. FDI ceiling in sectors like teleports, Direct to Home (DTH), Cable Networks, mobile TV and Headend-in-the Sky Broadcasting Service(HITS) has been increased to 100 percent. Norms for foreign invesment in pharmaceutical sector too have been liberalised.

Also, 100 percent 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 USD 55.46 billion in 2015-16, as against USD 36.04 billion in 2013-14.

Source: Money Control