Govt changes FDI regime, allows 100% FDI in defence

The Dollar Business Bureau

The government on Monday radically liberalised the foreign direct investment (FDI) regime by allowing 100 percent FDI in defence only through government approval and in multiple other sectors.

"With this change in rules, India becomes the world’s most open economy for FDI," said a statement released by the Commerce Ministry. After November 2015, this is the second biggest change in the country’s FDI policy.

With the change in regime, the defence sector has been completely opened up to FDI through approval route, which can result in access to state-of-art technology in India or for other purposes. The clause ‘access to state-of-art’ technology has since been removed.

The government till date has allowed 100 percent FDI in animal husbandry, civil aviation, and trading, including e-commerce, with regard to food products produced or manufactured in the country.  The government has also decided to ease the local sourcing norms to three years and another five years for firms involved in single brand retail trading of items having ‘cutting edge’ and ‘state-of-art’ technology.

With this announcement, IT giant, Apple Inc is expected to be benefitted from the three-year relaxation of local sourcing norms by the government with another relaxation of up to five years. Other single-brand retailers such as furniture major IKEA are also expected to be benefitted.

Ramesh Abhishek, Secretary, DIPP, said, “We will inform Apple to indicate whether they would like to avail the new provisions.” The decision to ease the FDI regime in key sectors has been taken at a meeting headed by Prime Minister Narendra Modi.

PM Modi welcomed the liberalisation of FDI norms and said that this will make India the third-largest economy in Asia that is most liberal in the world.

Last year, the government had eased the norms for FDI in several sectors, a decision that helped the country’s FDI flows touch an all-time peak of $55.46 billion in 2015-16. The easing in FDI norms in more vital sectors will give a major thrust to employment and creation of jobs in the country, the government said.