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Modi's ambition: To make India the most open economy for FDI

June 20, 2016 20:09 IST
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Relaxing FDI norms will provide a major impetus to employment and job creation

India on Monday announced sweeping reforms to rules on foreign direct investment (FDI), opening up its defence and civil aviation sectors to complete outside ownership.

Prime Minister Narendra Modi said the changes would make India "the most open economy in the world for FDI" and provide a "major impetus to employment and job creation".

Here are the key changes:

Aviation

The government has allowed 100 per cent FDI in civil aviation, of which 49 per cent is under the "automatic route", meaning that it would not require government approval. Beyond 49 per cent would need to be approved by the government.

In addition, 100 per cent FDI would be allowed in brownfield, or existing, airport projects under the automatic route.

The changes could benefit Gulf carriers such as Qatar Airways and Dubai's Emirates, which have previously indicated an interest in Indian aviation. Indian aviation firms Jet Airways, Spicejet and Indigo Airlines' parent InterGlobe all ended the day on a high.

Single-brand retail

The government said it has decided to relax local sourcing norms for up to three years for companies undertaking single brand retail trading.

Among these, the companies selling products with "state of the art" and "cutting edge" technology would get another five years of local sourcing exemption.

Apple Inc is expected to be a key beneficiary of this provision, as it can immediately open its doors in India, a market it is relying on to offset slowing growth in China and the United States. Single-brand retailers like furniture giant IKEA also stand to benefit.

Defence

The government has allowed up to 100 per cent FDI in defence and done away with the requirement of "state of the art" technology while considering FDI cases of above 49 per cent investment.

The move comes after India earlier this year outlined plans to focus defence spending more on the domestic market instead of importing combat planes, ships and submarines.

Pharmaceuticals

The government has approved 74 per cent FDI under the automatic route in brownfield, and beyond that would continue to require government approval.

Analysts said the new norms bode well for foreign drugmakers looking to get a pie of India's lucrative drugs market, and merger and acquisitions activity in the sector could pick up.

Food products

The government has permitted 100 percent FDI under the government approval route for trading, including through e-commerce, of food products made in India.

Cable networks/DTH/Mobile TV

The government has allowed 100 per cent FDI under the automatic route.

Private security agencies

The government has permitted up to 49 per cent FDI under the automatic route. Beyond 49 per cent and up to 74 per cent would require government approval.

Animal husbandry

Current norms allow 100 per cent FDI in animal husbandry, pisciculture, aquaculture and apiculture under the automatic route, under "controlled conditions". Under the changes introduced on Monday, the government said it has done away with the requirement of "controlled conditions".

Photograph: Anindito Mukherjee/Reuters

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