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The government on Tuesday eased the regulations for foreign direct investment (FDI) in key sectors such as single-brand retail, banking, construction, media and airlines, ahead of Prime Minister Narendra Modi’s scheduled UK visit.
Fifteen areas and 32 investment points will benefit from the liberalisation.
The Department of Industrial Policy and Promotion (DIPP) also raised the cap for approval by the Foreign Investment Promotion Board (FIPB) to Rs 5,000 crore from Rs 3,000 crore. The Cabinet Committee on Economic Affairs (CCEA) will decide on FDI proposals not under the automatic route and beyond Rs 5,000 crore.
Soon after the FDI policy announcement, Modi tweeted: “Govt’s commitment to development and reforms is unequivocal & unwavering. Today’s reforms are another example of emphasis on minimum government, maximum governance. They will ease, rationalise and simplify processes.”
He will be going to UK on November 12, and then to the G-20 meeting in Turkey. The new FDI policy was unveiled without even a Cabinet approval. The clearance would be taken ex post facto.
Finance Minister Arun Jaitley said FDI inflows in last one year increased by 40 per cent and foreign investment required for economic activity has to be encouraged.
One of the most important sectors to be affected by this policy is single-brand retail. Now, global technology brands such as Apple or Sony will be able to open fully-owned stores in India. Others such as Ikea, Zara, H&M, GAP and Marks & Spencer will now be able to sell their products online while operating stores in India.
Private banking, too, will benefit significantly. The composite foreign investment cap in the sector has been raised to 74 per cent. Earlier this year, when fungibility — a good or asset's interchangeability with other individual goods or assets of the same type — of foreign investment was permitted in other industries, private banking was left out. The "sensitive" nature of the sector was sighted as a reason.
The new policy was, however, silent on allowing 100 per cent FDI in private sector banks — an idea mooted by the DIPP earlier. Another sector left out of composite foreign investment earlier was defence. Now, even in defence, 49 per cent foreign investment can come through portfolio or FDI. Earlier, portfolio investment up to only 24 per cent was permitted. For proposals for more than 49 per cent FDI in defence, the FIPB will take a call. The construction sector, which has suffered of late from subdued activity, also got a breather from the new policy.
"Allowing 100 per cent FDI in completed construction projects will help the real estate sector in liquidating their current inventories, which in turn will fuel growth," said Vivek Mehra, a partner at PwC-India.
The policy will be of help mostly for developers such as DLF, Unitech and Sobha, experts said.
However, an official statement said one of the aims of easing FDI in the construction sector was to build 50 million houses for the poor.
Civil aviation, too, got a piece of the liberalisation pie. It is now allow 100 per cent FDI in ground handling and helicopter services.
In the media space, direct-to-home (DTH) companies and cable operator companies can now draw 100 per cent FDI. Earlier, the FDI limit for the cable and DTH sector was 74 per cent - 49 per cent through the direct route and with government approval beyond that.
The ministry has relaxed FDI rules in non-news media as well.
"The government's decision on liberalising the FDI policy is a welcome step. These decisions come into force with immediate effect," Economic Affairs Secretary Shaktikanta Das said.
The new policy also eased FDI norms for limited-liability partnership firms, bringing them in line with other business structures.
It also allowed 100 per cent FDI in five plantation crops — coffee, rubber, cardamom, palm oil and olive oil through the automatic route, a move hailed by the industry. DIPP Secretary Amitabh Kant said, "This is a Diwali gift for investors."
