Government launches sweeping reforms in the FDI front

Major FDI liberalization drive in food processing, pharma and defence:

The government has announced major reform measures by removing existing notable restrictions in critical sectors. These include relaxation in three sectors – the sensitive and high growth food product sector, strategic sector -defense and competitive sector -pharma.

Announcing the decision, Prime Minister described that India is the most open economy in the world now. The announcement also helped the government to calm markets that started to react violently to Raghuram Rajan’s exit decision.

A remarkable outcome of the new policy is that upto 100% FDI is allowed under defence and civil aviation sectors.

The single brand retail FDI norms gives a maximum exemption limit against local sourcing at eight years. Hence single brand companies planning to invest in India like Apple, should source from locally eight years after starting their business operations in India. Changes in single brand retail norms will facilitate Apple’s direct marketing operations in India.

In the defence sector, the policy permits foreign investment beyond 49% under approval route. The condition of state of the art technology requirement has been dropped.

In civil aviation sector, the new policy allows up to 100% FDI in domestic airlines and new airports. This will enable foreign companies to fully own Indian domestic carriers and greenfield (newly built) airports and up to 74% in existing airports.

In the case of pharmaceutical sector, foreign investments in brownfield projects up to 74% has been permitted under the automatic route and beyond 74%, approval route becomes mandatory.

A major as well as the unexpected push is the permission given to foreign investors to trade in food products where large number of MSMEs are engaged. The sector has been opened to 100% FDI.

The policy also permits 100% FDI in teleports, direct to home, cable networks and mobile TV under automatic route.