In a move to revive economic activity, the government has relaxed several rules in the areas such as single-brand retail, contract manufacturing, coal mining and digital media in order to attract more foreign direct investment (FDI). Most of the decisions are in line with the announcements made in the Union Budget last month.
In a fresh round of FDI reforms, the government allowed 100 per cent foreign investment in coal mining and contract manufacturing, eased sourcing norms for single-brand retailers and approved 26 per cent overseas investment in digital media as it looked to boost economic growth from a five-year low. Separately, the finance ministry has notified rules allowing 100% FDI for insurance intermediaries. Although a decision on aviation is awaited. "The changes in FDI policy will result in making India a more attractive FDI destination, leading to benefits of increased investments, employment, and growth," Commerce Minister Piyush Goyal said after the meeting of the Union Cabinet.
The easing of FDI norms comes days after finance minister Nirmala Sitharaman unveiled a raft of measures to provide a boost to a slowing economy. The moves come amid an anticipated slowdown in global FDI flows and are aimed at spurring investment, especially in new ventures, given that domestic companies are refusing to pump in money in expanding facilities, citing excess production capacity.
Also, 100 per cent FDI under automatic route has been allowed in contract manufacturing to give a big boost to domestic manufacturing. In single-brand retail trading (SBRT), the definition of 30 per cent local sourcing norm has been relaxed and online sales permitted without prior opening of brick and mortar stores. "Online sales will lead to the creation of jobs in logistics, digital payments, customer care, training and product skilling," he said.
FDI rules relating to digital media have also been liberalised. It has been decided to permit 26 per cent FDI under government route for uploading/streaming of news and current affairs through digital media, on the lines of the print media. Presently, 100 per cent FDI under automatic route is allowed in coal and lignite mining for captive consumption in power projects, iron and steel and cement units. Now, the same has been allowed for sale of coal and mining, including associated processing infrastructure such as coal washery, crushing, coal handling, and separation (magnetic and non-magnetic).
‘Move to make Indian cos part of global value chain’
Piyush Goyal said the twin moves are aimed at making Indian companies part of the global value chain at a time when international players are looking at expanding their footprint beyond China and locating in other markets. Goyal said decisions of the Cabinet are aimed to "liberalize and simplify the FDI policy to provide ease of doing business in the country, leading to larger FDI inflows and thereby contributing to the growth of investment, income and employment".
FDI is a major driver of economic growth and a source of non-debt finance for the economic development of the country. The government has put in place an investor-friendly policy on FDI, under which investment up to 100 per cent is permitted on the automatic route in most sectors/ activities. These reforms have led to total FDI into India reaching USD 286 billion in five years from 2014-15 to 2018-19 as compared to USD 189 billion in the previous five-years, Goyal said. At USD 64.37 billion, FDI in 2018-19 is the highest ever investment received for any financial year.