Manmohan Singh, the then Union Finance Minister, changed India’s economy in 1991, ending 44 years of a virtually closed economy. This marked India’s economic liberalization.
Looking back now, it appears to be a pioneering milestone which has firmly placed India on the global map. The Central Government celebrated the silver jubilee of this landmark initiative by virtually opening up the entire economy. Here are some of the recent changes relating to foreign investment:
1. Food Products manufactured/produced in India.
It has now been decided to permit 100% FDI under the government approval route for trading, including through e-commerce, in respect of food products manufactured or produced in India.
2. Foreign Investment in Defence Sector up to 100%
- Foreign investment in defence beyond 49% has now been permitted through the government approval route, in cases resulting in access to modern technology in the country or for other reasons to be recorded. The condition of access to ‘state-of-art’ technology in the country has been done away with.
- FDI limit for the defence sector has also been made applicable to the Manufacturing of Small Arms and ammunition covered under the Arms Act 1959.
3. Broadcasting Carriage Services.
The sectoral cap for FDI has been made 100% under automatic routes in (a) Teleports (b) Direct to Home (DTH) (c) Cable Networks (d) Mobile TV.
Infusion of fresh foreign investment, beyond 49% in a company not seeking license/permission from the sectoral Ministry, resulting in a change in the ownership pattern or transfer of stake by existing investor to the new foreign investor, will require approval from Foreign Investment Promotion Board (FIPB).
It has been decided to permit up to 74% FDI under the automatic route in brownfield pharmaceuticals and the government approval routes beyond 74% will continue.
5. Civil Aviation Sector.
With a view to aiding in the 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 routes in brownfield airport projects.
As per the present FDI policy, foreign investment of up to 49% is allowed under automatic routes 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 the automatic route.
However, foreign airlines would continue to be allowed to invest in the 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.
6. Private Security Agencies.
FDI up to 49% is now permitted under the automatic route in this sector and FDI beyond 49% and up to 74% would be permitted with the government approval route.
7. Establishment of the branch office, liaison office or project office.
For the establishment of the branch office, liaison office or project office 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.
As per FDI Policy 2016, FDI in animal husbandry (including breeding of dogs), pisciculture, aquaculture and apiculture is allowed 100% under automatic Routes under controlled conditions. It has been decided to do away with this requirement of ‘controlled conditions’ for FDI in these activities.
9. Single Brand Retail Trading.
It has now been decided to relax local sourcing norms for 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.
The above changes are significant considering that most of the sectors are now available for foreign investment mostly under the automatic route. The annual edition of the Consolidated FDI Policy of India was published earlier this month. However, the above changes in FDI policy less than a fortnight later have completely overshadowed the annual updation exercise.
However, in order to give these policy changes legislative backing, the Government will table an amendment to the Foreign Exchange Management Act before the Parliament in its upcoming monsoon session in July. The Government has come under severe criticism for opening up certain sectors like defence. We will wait to see the long-term effects of these steps.