Govt relaxes more FDI norms, allows 100% in defence, aviation

Mumbai: The NDA government on Monday announced relaxed foreign direct investment (FDI) norms in single brand retail, civil aviation, airports, pharmaceuticals, animal husbandry and food products.

It has allowed up to 100% foreign direct investment (FDI) in defence through the approval route, 100% FDI in food product e-commerce, 100% FDI in greenfield pharma via the automatic route, 100% in browfield pharma - of which 74% will be through automatic route - 100% FDI in scheduled airlines, and up to 49% FDI in airlines through automatic route.

While FDI in defence beyond 49% was already allowed through approval route and up to 49% through automatic route, the new norms have done away with the condition of access to ‘state-of-art’ technology in the country for FDI more than 49%.

The government has also 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, which will likely make it easier for companies like Apple to set up manufacturing units in India. Apple CEO Tim Cook had recently met Prime Minister Modi to ask for exemption from the 30% local-sourcing rule for the iPhone maker. 

In a statement announcing the new norms, the government said the changes 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". 

"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," the statement added. 

FDI inflows for the financial year ending March 2016 stood at $55.46 billion, up from $36.04 billion in the previous fiscal.

Up to 100% FDI through auomatic route has also been permitted for setting up of uplinking HUBs/Teleports, Mobile TV, DTH, and cable networks operating at national, state and district levels, as well as local cable networks. 

However, 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 require FIPB approval, the government said. 

The government also waived RBI approval or separate security clearance in the setting up of branch/liasion/project offices in defence, telecom, private security or information & broadcasting in cases where FIPB or license/permission by the concerned Ministry/Regulator has already been granted.

Officials met earlier today at the Prime Minister's Office to discuss FDI changes that appeared timed to regain the initiative after the surprise announcement by Reserve Bank of India Governor Raghuram Rajan over the weekend that he would not seek a second term.

In the last two years, the government has brought major FDI policy reforms in a number of sectors, including defence, construction development, insurance, pension sector, broadcasting sector, tea, coffee, rubber, cardamom, palm oil tree and olive oil tree plantations, single brand retail trading, manufacturing sector, limited liability partnerships, civil aviation, credit information companies, satellites - establishment/operation and asset reconstruction companies.

The new norms also do away with the 'controlled conditions' clause for 100% FDI through automatic route in animal husbandry (including breeding of dogs), pisciculture, aquaculture and apiculture sectors.

The last time the government announced a loosening of India's complex FDI rules was following the Bharatiya Janata Party's defeat in the Bihar Assembly Elections last year.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.