FDI Reforms: India now the most open economy in the world

Earlier today, the Indian Government took the nation by surprise by giving effect to its second round of liberalisation of its Foreign Direct Investment (FDI) regime..“With these changes, India is the most open economy in the world for FDI” says the press release..The Government had overhauled the FDI regime earlier in November 2015, and after the latest announcement, India has brought almost all sectors under the automatic route. This is one of the manifold measures the government has taken to improve ‘ease of doing business’ in India, and create more jobs..Here are the key highlights:.1. Food industry.An opportunity for booming the e-commerce sector is given by enabling 100% FDI in trading in the food industry, including trading in e-commerce. This will help increase FDI in food processing sector, which is expected to cross USD 1 billion in the next two years, says Food Processing Minister, Harsimrat Kaur Badal..2. Defence.While FDI in defence sector was allowed up to 49% under the automatic route, beyond 49% was under approval route, albeit, with a condition which allowed access to ‘state-of-art’ technology. This condition has now been done away with. Furthermore, the scope of FDI has been expanded to include manufacturing of Small Arms and Ammunitions covered under Arms Act 1959..3. Broadcasting carriage services.For Teleports, direct to home, cable networks, mobile television, Headend-in-the Sky Broadcasting Service (HITS), 100% FDI under the automatic route has been approved..However, the press release also made it clear that infusion of foreign investment beyond 49% in a company not seeking license/ permission from sectoral Ministry, resulting in change in the ownership pattern or transfer of stake by existing investors to new foreign investor, will require approval from Foreign Investment Promotion Board (FIPB)..The benefits of this development would serve no purpose unless the last mile operator is educated about this as cable operators in smaller towns never come to know of these changes. Otherwise, it will lead to monopolies..4. Pharmaceutical .While 100% FDI is allowed in pharmaceutical greenfield projects under the automatic route, 100% FDI is allowed into pharmaceutical brownfield projects under government approval route. This has been changed to automatic route if FDI is up to 74%, beyond that, getting a nod from the government will continue to be necessary..5. Civil Aviation.This sector is a winner, as 100% FDI is now permitted even in brownfield projects which, prior to this, allowed only 74% under automatic route. Further, in the case of domestic airlines, foreign investment up to 49% will now be allowed under the automatic route and up to 100% after government approval..6. Private Security Agencies.FDI up to 49% is now permitted under automatic route in this sector and FDI beyond 49% and up to 74% would be permitted with government approval route..7. Establishment of branch office, liaison office or project office.Additional requirement of Reserve Bank of India license has been done away with for Defence, Telecom, Private Security or Information and Broadcasting sectors, provided FIPB clearance has been obtained..8. Animal Husbandry.This sector already allows 100% FDI, albeit, with certain conditions imposed on each activity. The conditions have now been done away with..9. Single Brand Retail Trading.This may have been a regressive step from the extant policy. The FDI policy did not impose a ‘time period’ for relaxation of local sourcing rules..However, with Apple’s application, the government has tightened the norms around single brand retail trading limiting the waiver for local sourcing norms up to three years and a relaxed sourcing regime for another five years..And, we’re yet to see the definition of what constitutes ‘state-of-art’ technology..(Image: Source)