Weeks after it relaxed the foreign direct investment (FDI) regime, the government has begun a fresh review for further liberalisation of sectoral caps as well as segments that are not on the automatic list, as it courts more overseas investors to revive the investment cycle. The department for promotion of industry and internal trade (DPIIT) has initiated an internal exercise to identify additional sectors for easier FDI rules before it takes them up with ministries concerned, sources said. “While most sectors are already on automatic route, we are seeing if there is further scope,” said an official. Just last month, the cabinet cleared rules for coal mining, single-brand retail, contract manufacturing and digital media, while the finance ministry changed the norms for segments of the insurance business.
However, a budget announcement regarding aviation is still due which DPIIT is not pursuing with the civil aviation ministry. While the government allows 100% FDI in the sector, the rules governing substantial ownership and effective control are seen to be stumbling blocks on which the civil aviation ministry is yet to make up its mind, delaying a decision on the matter. Over the years the government has eased the rules considerably, with only a handful of sectors left where prior government approval is required. The list includes defence and telecom, where up to 100% FDI is allowed, but overseas investment beyond 49% requires prior government approval. Similarly, in case of private security agencies, brownfield investment in healthcare, pharmaceuticals and biotechnology FDI above 74% requires prior approval. There are only nine sectors FDI is now prohibited, including lottery, gambling and betting, chit funds, and nidhi companies, real estate, and atomic energy and railway operations, according to a paper prepared by Singhania and Partners.
While more and more automatic route investments are permitted, allowing investors to merely inform RBI after the investment is made, the government is considering increasing the scrutiny to know where such money flows. “There are concerns over money from China going to the North East and in some sectors that are strategic. The idea is to keep tabs on such investment without discouraging them,” said a source.
The issue was raised before the last set of cabinet clearances and since then DPIIT has held discussions with RBI, which indicated that most of the aspects are part of a questionnaire that investors are required to fill, while reporting FDI allowed under the automatic route. Going forward, a few more queries may need to be answered.