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FDI Policy Liberalized to Attract More Investment

Foreign Direct Investment (FDI) has been further liberalized in key sectors including Single Brand Retail Trading (SBRT) and Construction Development, as the Union Cabinet chaired by the Prime Minister Shri Narendra Modi on Wednesday January 10, 2018 approved amendments intended to liberalise and simplify the FDI policy so as to provide ease of doing business in the country. It has been felt that the country has potential to attract far more foreign investment which can be achieved by further liberalizing and simplifying the FDI regime. In turn, it will lead to larger FDI inflows contributing to growth of investment, income and employment.

  • 100% FDI under automatic route for Single Brand Retail Trading has now been permitted. Earlier 49% FDI under automatic route and FDI beyond 49% and up to 100% through Government approval route was allowed.

SBRT entity has also been permitted to set off its incremental sourcing of goods from India for global operations during initial 5 years, beginning 1stApril of the year of the opening of first store against the mandatory sourcing requirement of 30% of purchases from India. After completion of this 5 year period, the SBRT entity shall be required to meet the 30% sourcing norms directly towards its India’s operation, on an annual basis.

  • 100% FDI has been allowed under automatic route in Construction Development: Townships, Housing, Built-up Infrastructure and Real Estate Broking Services. It has been decided to clarify that real-estate broking service does not amount to real estate business and is therefore, eligible for 100% FDI under automatic route.
  • Foreign Airlines have now been allowed to invest up to 49% under approval route in Air India subject to the conditions that:
    • Foreign investment(s) in Air India including that of foreign Airline(s) shall not exceed 49% either directly or indirectly
    • Substantial ownership and effective control of Air India shall continue to be vested in Indian National

Earlier foreign airlines were allowed to invest under Government approval route 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. This provision was not applicable to Air India, thereby implying that foreign airlines could not invest in Air India.

  • Foreign Institutional Investors (FIIs) / Foreign Portfolio Investors (FPIs) have been allowed to invest in power exchanges through primary market as well. Extant policy provides for 49% FDI under automatic route in Power Exchanges registered under the Central Electricity Regulatory Commission (Power Market) Regulations, 2010. However, FII/FPI purchases were restricted to secondary market only. It has now been decided to do away with this provision.
  • Definition of ‘medical devices’ has been amended in the FDI Policy. FDI policy on Pharmaceuticals sector inter-alia provides that definition of medical device as contained in the FDI Policy would be subject to amendment in the Drugs and Cosmetics Act. As the definition as contained in the policy is complete in itself, it has been decided to drop the reference to Drugs and Cosmetics Act from FDI policy.
  • Joint Audits have now been stipulated in Indian investee companies receiving foreign investments wherever the foreign investor wishes to specify a particular auditor/audit firm having international network for the Indian investee company, wherein one of the auditors should not be part of the same network.

Earlier the FDI policy did not have any provisions in respect of specification of auditors that can be appointed by the Indian investee companies receiving foreign investments

Foreign Direct Investment is a major driver of economic growth and a source of non-debt finance for the economic development of the country. Government has put in place an investor friendly policy on FDI, under which FDI up to 100%, is permitted on the automatic route in most sectors/ activities. Government in the recent past has brought FDI policy reforms in a number of sectors that include Defence, Insurance, Pension, Other Financial Services, Asset Reconstruction Companies, Broadcasting, Civil Aviation, Pharmaceuticals, and Trading etc.

Measures undertaken by the Government have resulted in increased FDI inflows in to the country. An all-time high FDI of US $ 60.08 billion has been received in the financial year 2016-17 and there has been incremental growth in FDI as compared to previous years as under:

  • 2015-16: US $ 55.46 billion
  • 2014-15: US $ 45.15 billion
  • 2013-14: US $ 36.05 billion

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