Modi gives final nod to woo foreign investors into India

Two years of Prime Minister Narendra Modi in office, and it can be quite easily said that bringing foreign investors flocking to India, has been amongst his main agendas. One of the others is manufacturing in India, or 'Make in India' as the Centre calls it. 

On Wednesday, the Union Cabinet chaired by Modi, gave its nod to the major changes made to the FDI rules earlier this year, including hiking foreign investment to 100% in the defence sector. 

“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 amendments are meant for liberalising and simplifying the FDI policy so as to provide ease of doing business in the country, leading to larger FDI inflows contributing to the growth of investment, incomes and employment,” an official statement from the government said.

Modi has travelled to several countries, held one-on-one interactions with the heads of states from US to South Africa, Iran to Afghanistan, and even Pakistan, to forge new diplomatic relationships for this purpose. 

On the home turf, the government is working to improve the ease of doing business environment in the country, overhaul the indirect tax regime to boost investment sentiment, and even simplifying the Foreign Direct Investment (FDI) regulations to encourage foreign capital into India. 

If it goes as the Prime Minister envisages, it will give an impetus to his flagship 'Make in India' programme and create jobs for the millions joining the workforce in the country every month. 

Here are the changes made to FDI regulations:

Defence sector: The government has allowed 100% FDI in the defence sector through the approval route, opening it up from the '49% investment through approval route' earlier. 

"Foreign investment beyond 49% has now been permitted through 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," a statement from the government said. 

This is also applicable to the manufacturing of small arms and ammunition under the Arms Act 1959.

Pharmaceutical sector: FDI in pharmaceutical sector was increased to 74% through the automatic route for investing in existing companies which will prompt merger and acquisition deals in the sector. 

"With the objective of promoting the development of this sector, 74% FDI under automatic route has been permitted in brownfield pharmaceuticals. FDI beyond 74% would be permitted through Government approval route," a government notification said. 

Green-field and brown-field investments are different. A greenfield investment is when a parent company begins a new venture by constructing new facilities in a country outside of where the company is headquartered. It is a brown-field investment when a company or government purchases an existing facility to begin new production.

Civil Aviation Sector: The government has been taking several measures to boost the aviation sector in the country, that has been long under stress. For this, it the new Civil Aviation Policy was proposed, and FDI norms were tweaked. 

Under the new rules, the cabinet has allowed for 100% FDI in brownfield projects from the previous 74% cap under the government route. 

This will lead to modernization of the existing airports and help in easing the pressure from the existing airports.

The existing 49% FDI under Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline and regional Air Transport Service, has been revised to 100%, with FDI upto 49% permitted under automatic route and FDI beyond 49% through the approval route. 

Private Security Agencies : Private security agescies agencies are already required to get licence under PSAR Act 2005, the requirement of putting them through another array of government approvals has been done away. FDI up to 49% is now permitted under the automatic route in this sector. Beyond that, and upto 74%, is permitted through government approval route.

Animal Husbandry: FDI in animal husbandry was allowed up to 100% under the automatic route under controlled conditions. The ‘controlled conditions’ clause has been done away with by the government.

E-commerce sector: 100% FDI under government route for trading for food products manufactured and/or produced in India.

Others:

For establishment of 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, an approval from the Reserve Bank of India (RBI) would not be required in cases where an approval from Foreign Investment and Promotion Board (FIPB) or license/ permission by the concerned Ministry/ Regulator has already been granted.

Also 100% FDI via automatic route has been approved in sections such as teleports, direct to home, cable networks, mobile televisions and headened-in-the sky broadcasting services.

In last two years, the government has brought major FDI policy reforms in a number of sectors viz. Defence, Construction Development, Insurance, Pension Sector, Broadcasting Sector, Tea, Coffee, Rubber, Cardamom, Palm Oil Tree and Olive Oil Tree Plantations, Single Brand Retail Trading, Manufacturing Sector, Limited Liability Partnerships, Civil Aviation, Credit Information Companies, Satellites- establishment/operation,  and Asset Reconstruction Companies. 

So far, measures undertaken by the government have registered FDI inflows at $55.46 billion in financial year 2015-16, a rise of 54% versus $36.04 during financial year 2014-15, the government said, according to a PTI report.