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India: The most open economy for FDI

Ravi Capoor, Former CEO, IBEF

Jun 30, 2016 14:00

The Government of India has recently announced radical liberalisation of the Foreign Direct Investment (FDI) regime by easing norms for a host of important sectors including defence, civil aviation and pharmaceuticals, opening them up for complete foreign ownership. The decisions included permitting 100 per cent FDI under government approval route for trading, including through e-commerce, in respect of food products manufactured or produced in India, bringing into effect the proposal made in the Budget 2016-17.

In defence, foreign investment beyond 49 per cent (and till 100 per cent) has been permitted through the government approval route, in cases resulting in access to modern technology in the country. The condition of access to ‘state-of-art’ technology in the country has been done away with.

To promote foreign investment in the pharmaceutical sector, the government has permitted up to 74 per cent FDI under automatic route in existing pharmaceutical ventures. It added that the government approval route will continue beyond 74 per cent FDI and upto 100 per cent in such brown-field pharma ventures. Other important sectors like aviation and retail have also seen a wave of announcements easing foreign investments in these areas.

In parallel, the government has also tightened rules for foreign companies aiming to produce items with cutting-edge and state-of-art technology by giving them only a three-year blanket exemption from the 30 per cent local sourcing norm over and above the five years where the 30 per cent procurement requirement would have to be met as an average of five years’ total value of the goods purchased. Experts believe that this will ensure that they manufacture in India rather than making profits through just trading activities.

"Today's FDI reforms will give a boost to employment, job creation and benefit the economy. This is second major (FDI) reform after the last radical changes announced in November 2015," said Mr Narendra Modi, Prime Minister of India in a tweet further adding that with these changes, India is now the most open economy in the world for FDI.