Indian Government Approves Amendments To FDI Policy

The Indian government has approved a wide range of changes to the country’s Foreign Direct Investment (FDI) policy which was initially released on June 20.

This was the second round of substantial economic reform introduced after the initial set was released in November 2015. The simplification of the FDI rules is expected to boost’s India’s image as a great destination for foreign investments.

According to an announcement made by the government earlier this week, the Cabinet had formally approved the changes.

In a statement, a government official said

The Union Cabinet chaired by Prime Minister Narendra Modi has given its ex post facto approval for the FDI policy amendments announced by the government on June 20, 2016. The FDI policy amendments are meant for liberalizing and simplifying 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

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Under the new policy, sectoral caps and restrictions have been eased for numerous industries. Most of the sectors impacted by these changes will now be able to source FDI under the automatic route barring a limited set of industries in the negative list. According to the government, as a result of these changes India has now become one of the most attractive economies in the world for FDI.

Foreign investment in the defence sector is now allowed up to 100 percent, increasing it from the 49 percent that was approved earlier. In the earlier regime, investment over 49 percent was allowed on a case-by- case basis. Increased FDI investment into airports is now possible as a result of 100 percent FDI under automatic route being allowed in brownfield airport projects.

Other industries where the FDI cap has gone up to 100 percent are: Direct to Home (DTH), teleports, mobile TV and Cable Networks, Headend-in-the Sky Broadcasting Service (HITS). Additionally 100 percent FDI under automatic route has been approved in trading and e-commerce projects that market food products produced or manufactured in India.

In single-brand retail trading, local sourcing norms have been relaxed for companies that are dealing in products having state-of- art technology but still require prior approval. In case of private security agencies, FDI is allowed under the automatic route up to 49 percent but beyond that percentage would require government approval. Automatic FDI investments up to 74 percent into brownfield pharmaceutical projects has also been permitted in the latest amendment.

The reforms undertaken over the past two years have yielded strong growth in FDI with the financial year 2015-16 seeing record inflow of US$ 55.46 billion as opposed to the inflow of US$ 36.04 billion observed in 2013-14.

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