The Union Govt seems to be in a liberalization spree. The Government of India has further liberalized the existing FDI policy vide its press release. As per the Govt, this has been done with the objective of providing major impetus to employment and job creation in India. The best part of this policy is that now India has become the most free economy in the world. This policy is radicalistic in the sense that most sectors have now been put under the automatic route. Amendments have been made in the policy include increase in sectoral caps, bringing more activities under automatic route and easing of restrictions for foreign investment. FDI policy liberalized – most sectors under 100% FDI.

Following are the details of few of the sectors in which major changes have been proposed:

1. Food Products

FDI up to 100% has been permitted under Government approval route for trading, including through e-commerce, in respect of food products manufactured or produced in India.

2. Defense

As per present rules, FDI upto 49% is allowed under the automatic route. FDI above 49% is permitted through Government approval on case to case basis, subject to it resulting into access to modern and “state of art” technology in the country.

Government has now specifically permitted FDI up to 100% in defense sector with Government approval required beyond 49% and condition of access to ‘state-of-art’ technology in the country for proposal beyond 49% has been now been done away with. FDI limit for defense sector has also been made applicable to manufacturing of small arms and ammunitions covered under Arms Act 1959.

3.Broadcasting Carriage Services (Teleports/DTH/Cable Networks/Mobile TV/Headend-in-the Sky Broadcasting Service: 

FDI up to 100% now permitted under automatic route in broadcasting carriage services, earlier FDI in broadcasting carriage services beyond 49% required prior Government approval.

Further, infusion of fresh foreign investment, beyond 49% in a company not seeking license/permission from sectoral ministry, resulting in change in the ownership pattern or transfer of stake by existing investor to new foreign investor, will continue to require Government approval in broadcasting carriage services.

New sectoral caps and entry routes are as under:

100% Automatic

• Teleports (setting up of up-linking HUBs/Teleports);
• Direct to Home (DTH);
• Cable Networks (Multi System operators (MSOs) operating at National or State or District level and undertaking upgradation of networks towards digitalization and addressability);
• Mobile TV;
• Headend-in-the Sky Broadcasting Service(HITS)

FIPB Approval beyond 49%

• Cable Networks (Other MSOs not undertaking upgradation of networks towards digitalization and addressability and Local Cable Operators (LCOs))

4. Civil Aviation

As per the present FDI policy, foreign investment up to 49% 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%, with FDI up to 49% permitted under automatic route and FDI beyond 49% through Government approval. For NRIs, 100% FDI will continue to be allowed under automatic route.

However, foreign airlines would continue to be allowed to invest in capital of Indian companies operating scheduled and non-scheduled air-transport services up to the limit of 49% of their paid up capital and subject to the laid down conditions in the existing policy.

The extant FDI policy on Airports permits 100% FDI under automatic route in Greenfield Projects and 74% FDI in Brownfield Projects under automatic route. FDI beyond 74% for Brownfield Projects is under government route.

With a view to aid in modernization 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% FDI under automatic route in Brownfield Airport projects.

5. Pharmaceutical

FDI up to 74% has been permitted in brownfield pharmaceuticals under automatic route and beyond 74% requires Government approval.

6. Private Security Agencies

FDI cap increased from 49% to 74% with FDI up to 49% being permitted under automatic route and beyond 49% and up to 74% through Government approval route.

7. Establishment of branch office, liaison office or project office

For establishment of BO/LO/PO 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 Reserve Bank of India or separate security clearance would not be required in cases where FIPB approval or license/permission by the concerned Ministry/Regulator has already been granted.

8. Animal Husbandry

FDI in Animal Husbandry (including breeding of dogs), Pisciculture, Aquaculture and Apiculture is currently allowed 100% under Automatic Route under controlled conditions. Now, requirement of ‘controlled conditions’ for FDI in these activities has been done away.

9. Single Brand Retail

It has now been decided to relax local sourcing norms up to three years and a relaxed sourcing regime for another five years for entities undertaking Single Brand Retail Trading of products having ‘state-of-art’ and ‘cutting edge’ technology.

 

As per media reports, FDI inflows have increased from US$ 36.04 billion during the financial year 2013-14 to 55.46 billion in financial year 2015-16. This is attributed to the measures undertaken by the Government in the last 2 years. However, sectors like food products, retail and defense still needed some liberalization. Many startups in the food and retail sector were flying out of India owing to sectoral caps and outsourcing requirements. The Govt intends to put a stop to this brain drain. These amendments to the FDI Policy can be well expected to do so.

Download a copy of the Press Release here: Amendments in Consolidated FDI policy

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