EDITOR’S DESK
INDIA NOW MOST OPEN
ECONOMY FOR FDI
The government has announced sweeping
changes in the India's FDI policy in various
sectors liberalizing the norms. June 21, 2016 was
not only an International Yoga Day being
celebrated and widely observed in 192 nations of
the world, the government of India chose to fight
the bad effects of Brexit and Rexit and revive the
stock markets by allowing 100 percent FDI in
defence, pharma, aviation, single brand retail, TV
broadcasting and many more sectors. Now most
of the sectors would be under automatic approval
route except a small negative list.
In defence sector, the government has dropped
the 'State of the art' clause for FDI over the 49%
limit existing so far. Under the new policy FDI up
to 100% will be allowed through the approval
route where the country gets access to 'Modern
Technology'. Thus the government has kept FDI
limit in Defence unchanged at 49% under the
automatic route and 100% under the approval
route. This will usher in a major boost to the small
arms manufacturing sector by bringing it on par
with the rest of the sector. The huge requirement
of fire arms for the armed forces, para military
and police forces could be easily met within the
country if well known foreign firms like Heckler &
Koch, Bereta, Colt and IWI come to India and take
up manufacturing. However the removal of
clause 'State of the art technology' for allowing
investment over 49% has been not taken well by
the industry circles. 100% FDI in defence is now
allowed resulting in access to modern technology
but the ambiguity still remains as to what is
modern technology. The proposals of over 49%
FDI are decided jointly by the ministries of
defence, commerce and home.
The government has raised FDI limit in Aviation
from 49% 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 automatic
route.
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Foreign airlines would continue to be allowed to
invest in 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. However in due course, this
49% restriction on ownership by a foreign airline
may also be lifted. The aim of the government is
to improve India's global and domestic
connectivity, by bringing latest aircraft fleet,
infrastructure and best practices.
FDI in pharma sector has also been liberalized.
Now mergers and acquisitions (M & A) with
domestic pharma companies by foreign
c o m p a n i e s h a s b e c o m e m u c h e a s i e r.
Multinational pharma companies or financial
investors who wish to invest or acquire Indian
drug companies can do so by buying up to 74%
equity stock without prior clearances from the
government. This relaxation will help ensure
availability of new drugs and medicines to the
Indian patients.
Local Sourcing Norms for Single Brand Retail
where 100% FDI is already allowed have now
been relaxed. Companies with 'Cutting edge'
technology can now avoid local sourcing of 30%
material up to eight years. Smart Phone
Companies like Apple and LeEco are likely to
benefit most who were hitherto denied their
applications to open their own retail stores in
India.
India is the fastest growing economy and
liberalizing the FDI further is need of the hour,
Modi government is doing its best to remove
anomalies and hurdles that disenchanted the
foreign investors in bringing funds to India. It is
just possible that certain constraints may still
come to the fore which might need government’s
quick attention to take a corrective step. In fact,
reform is an unending process and should
continue until we reach a full bloom economy.
Economic Challenger// ISSN 0975-1351/ July-Sept. 2016