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FDI in 2016

FDI in 2016

India is one of the fastest growing economies of the world. The FDI policy reforms are meant to provide ease of doing business and accelerate the pace of foreign investment in India. Foreign companies invest in India to take advantage of relatively lower wages, special investment privileges such as tax exemptions. Foreign investment in a country like India leads to generating employment is the major monetary source for economic development in India. Economic liberalization started in India during 1991 economic crises and since then FDI has steadily increased in India. However, the Government of India has amended FDI policy to increase FDI inflow. The Department of Industrial Policy & Promotion (DIPP) releases the FDI policy. The Policy for the year 2016-2017 has been made effective from the date of its publication i.e 7th June 2016. The FDI reforms include increase in sectoral caps, bringing more activities under the automatic route, opening up of new sectors for FDI, etc.

The following are the key developments in certain specific sectors:

  1. In Defence Sector foreign investment beyond 49% and up to 100% has been permitted through the government approval route.
  2. In e-commerce 100% FDI under government approval route for trading including e-commerce, in respect of food products manufactured or produced in India.
  3. In Pharmaceutical Sector the government has permitted up to 74% FDI under automatic route in existing pharmaceutical ventures. Beyond 74% and up to 100% has been permitted through government approval route. 1
  4. To boost airport development and modernization 100% FDI in existing airport projects has been allowed without government permission, from 74% permitted so far.
  5. In Single brand retail local sourcing norms eased for three years and relaxed sourcing regime introduced for 5 years.
  6. 49% FDI under automatic route permitted in Insurance and Pension sectors.
  7. FDI up to 100% under automatic route permitted in Teleports, Direct to Home, Cable Networks, Mobile TV, Head end in the sky broadcasting service.
  8. 100% FDI allowed in Asset Reconstruction Companies (ARC) under the automatic route.
  9. FDI limit for Private Security Agencies raised to 74%.
  10. 100% FDI under the automatic approval route is allowed in animal husbandry, pisciculture, aquaculture under controlled conditions. The Government has decided to remove the pre-requisite on “Controlled condition”.
  11. For establishment of branch office, liaison office or project office or any other place of business in India if the principle business of the applicant is Defence, Telecom, Private Security or Information and Broadcasting, approval of RBI would not be required in cases where FIPB approval or license/permission by the concerned Ministry/Regulator has already been granted. 2

 

However, FDI continues to be prohibited in lottery, gambling, atomic energy, real estate investments trusts and railway operations.

 

Government Initiatives:

  • The Government of India recently relaxed the FDI policy norms for Non-Resident Indians (NRIs). Under this the non-repatriable investments made by the Persons of Indian Origin (PIOs), Overseas Citizens of India (OCI) and NRIs will be treated as domestic investments and will not be subjected to FDI caps.
  • The Government has amended the FDI policy regarding Construction Development Sector. The amended policy includes easing of area restriction/norms, reduction of minimum capitalization and easy exit from the project.
  • Also, India is likely to grant Most Favored Nation (MFN) Treatment to 15 countries that are in talks regarding an agreement on the Regional Comprehensive Economic Partnership (RCEP), which would result in significant easing of investment rules for these countries. 3
  • However, the Government of India plans to further simplify rules for FDI such as increasing FDI investment limits in sectors and include more sectors in the automatic route, to attract more investments in the country.

 

Conclusion:

The concept of Make in India has really succeeded as it adds more employment. With this, India has now become a vibrant market for manufacturers. The center has radically liberalized the FDI regime, with the objective of providing major impetus to employment and job creation in India. With all the changes brought in by the Government in the FDI policy for the financial year 2016-2017, India would be one of the most open economy in the world for FDI. Government through a press release dated 20.06.2016 announced its decisions to introduce sweeping reforms to further liberalize the foreign investment regime in India. Corresponding changes to the 2016 FDI policy and RBI regulations are expected to provide clarity on the subject.

 

Notes:

  1. http://dipp.nic.in/English/Policies/FDI_Circular_2016.pdf
  2. http://www.makeinindia.com
  3. http://www.ibef.org/economy/foreign-direct-investment.aspx

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