In the second tranche of reforms of the country’s Foreign Direct Investment (FDI) rules in less than a year, the government has announced further relaxation in the norms for nine sectors, including defence, food processing, civil aviation, broadcasting and pharmaceuticals.
In single-brand retail, the government has tweaked the rules to exempt investors from the mandatory domestic sourcing of 30 per cent inputs, by extending it to all entities for three years and for a further five years for retailers selling products with ‘state-of-art’ and ‘cutting-edge’ technology. The decision was taken at a meeting chaired by Prime Minister Narendra Modi and attended by senior Ministers, including Finance Minister Arun Jaitley, on Monday.
“The twin objective is to attract more foreign investments to promote India as a manufacturing hub and to create jobs,” Commerce Minister Nirmala Sitharaman said after the meeting. The DIPP will now work on a negative list of sectors where conditions and caps will continue to exist.
Reacting to the announcements, Congress spokesperson Jairam Ramesh said, “It is a reaction to show to the world that it’s business as usual even as Raghuram Rajan has announced his exit. The BJP has always opposed FDI. It is ironical that it is today claiming FDI to be the answer to all of India’s economic problems. Domestic investment is far more important than FDI and only by FDI we are not going to be able to solve India's problems.”
In food processing, it has been decided to permit 100 per cent FDI under the government approval route for trading, including through e-commerce, in respect of food products manufactured or produced in India. “This is in line with the Budget announcement made by the Finance Minister,” said Sitharaman.
In defence, the government has dropped the condition of access to ‘state-of-the-art’ technology for allowing foreign investment beyond 49 per cent, which is permitted through the government approval route.
“The thought process behind this was that we are spending too much time in defining things and understanding what exactly is state-of-the-art. So, instead of keeping it verbose and making too many things binding us down, by using this one word ‘modern’, we hope to bring in technology that we require,” Sitharaman said.
The FDI limit for the defence sector has also been extended to manufacturing of small arms and ammunitions covered under the Arms Act. Economic Affairs Secretary Shaktikanta Das said the relaxation has been made because there was not enough interest from foreign investors.
In the pharmaceutical sector, where FDI in brownfield (existing) projects was allowed only through the government approval route, the Centre has now decided to permit up to 74 per cent FDI under the automatic route. For greenfield (new) projects, 100 per cent FDI through the automatic route is already allowed.
In civil aviation, the rules now allow100 per cent FDI under the automatic route in brownfield airport projects as opposed to 74 per cent at present. In scheduled air transport service/ domestic scheduled passenger airline and regional air transport service, the FDI limit has been raised to 100 per cent, with FDI beyond 49 per cent through the government approval route.
In the broadcasting sector, a decision has been taken to allow 100 per cent FDI through the automatic route for teleports, direct to home, cable networks as well as mobile TV.
In private security agencies, the FDI limit has been enhanced from 49 per cent to 74 per cent, with 49 per cent under the automatic route and higher under government approval.
The requirement of ‘controlled conditions’ for 100 per cent FDI in animal husbandry under the automatic route has been dropped.