2nd wave of FDI reforms in aviation, pharma, defence

 

New Delhi, 20 Jun 2016 (PTI): Government today launched a second wave of FDI reforms allowing 100 per cent inflows in civil aviation and food processing sectors while easing norms in defence and pharmaceuticals, steps apparently aimed at neutralising fallout of Raghuram Rajan’s decision to exit RBI.

 

A significant change in local sourcing policy for single-brand retail trading could now enable US-based Apple Inc to open stores under today’s decisions which also cover broadcasting carriage services, private security agencies and animal husbandry.

 

The major reform measures were decided at a high-level meeting chaired by Prime Minister Narendra Modi, which was earlier said to have been planned for tomorrow.

 

The Prime Minister’s Office (PMO) said the decisions will make "India the most open economy in the world for FDI", but critics said it was a "panic" reaction to Rajan’s decision on Saturday to exit RBI and return to academia after September 4.

 

The stock markets also reacted positively to the news of FDI reforms even as they recovered from early morning plunge after talking-up by influential marketmen that helped counter Rexit (Rajan’s exit) jitters.

 

Congress spokesman Jairam Ramesh described the decisions as a "panic reaction" which would not have come had Rajan not made the announcement. He also said the Congress does not believe that FDI is a magic wand.

 

Briefing media, Commerce Minister Nirmala Sitharaman said the decisions would help in attracting more investments, creating jobs and making India the global manufacturing hub.

 

Asked whether the announcement was timed to counter the ’hangover’ of Rajan, she said, "This work was going on for a couple of months. Can all this work be done in a day? It is proper to make the announcement when the work is complete."

 

Economic Affairs Secretary Shaktikanta Das said the changes would do away with dual clearances of proposals and will boost manufacturing and generate more jobs.

 

"Now most of the sectors would be under automatic approval route, except a small negative list. With these changes, India is now the most open economy in the world for FDI," the PMO statement said. The first batch of FDI reforms were announced by the  government in November 2015.

 

The most important announcement made today relates to civil aviation in which 100 per cent FDI has now been allowed in airlines, except by foreign carriers. Norms for overseas investment have also been relaxed in brownfield airports.

 

Under the present policy, foreign investment up to 49 per cent is allowed under automatic route in domestic airlines. It has now been decided to raise this limit to 100 per cent, with FDI up to 49 per cent under automatic route and beyond that through Government approval.

 

In the defence sector, the policy has been tweaked to allow 100 per cent FDI by doing away with the condition of access to "state of the art" technology. It has now been modified to "modern or for other reasons", a move that will widen the scope of investment by foreign players.

 

The new norms have also been made applicable to manufacturing of small arms and ammunitions covered under Arms Act 1959. Under the current policy, FDI up to 49 per cent was allowed under automatic route and beyond that under the approval route.

 

For the pharmaceuticals sector, the government relaxed the norms and permitted FDI up to 74 per cent through automatic route in brownfield projects and approval route beyond that limit to promote the development of this sector.

 

The move assumes significance as FDI in the existing pharma companies has been a contentious issue as concerns have been raised over some M&As of Indian pharma companies by foreign giants.

 

Some analysts stated that such activities were impacting accessibility and growth of the generic industry in the country.

 

In case of private security agencies, FDI up to 49 per cent is now permitted under automatic route and up to 74 per cent through approval route.

 

The current policy permits 49 per cent FDI under government approval route in private security agencies.

 

The government has also permitted 100 per cent FDI under automatic route in several wings of the broadcasting carriage services which include teleports, direct-to-home, cable networks, mobile TV and headend-in-the sky broadcasting service.

 

However, the statement said: "Infusion of fresh foreign investment beyond 49 per cent in a company not seeking licence/permission from sectoral ministry, resulting in change in the ownership pattern or transfer of stake by existing investor to new foreign investor, will require FIPB approval."

 

In order to promote manufacturing of food items, the government decided to permit 100 per cent FDI under approval route for trading, including through e-commerce in respect of such products manufactured or produced in India.

 

The government has decided to do away with the requirement of separate security clearance or RBI approval for setting up of branch or liaison offices by foreign companies dealing in defence, telecom, private security or information and broadcasting if the requisite approval of FIPB or the ministry or regulator concerned is in place.

 

The government has also decided to do away with the ’controlled conditions’ for FDI in these activities relating to animal husbandry.

 

As per the existing policy, FDI in animal husbandry (including breeding of dogs), pisciculture, aquaculture and apiculture is allowed 100 per cent under automatic route under controlled conditions.

 

Measures undertaken by the government have resulted in increased FDI inflows from USD 36.04 billion in 2013-14 to US 55.46 billion in 2015-16, the highest ever FDI inflow for a particular financial year, the statement said.

 

"However, it is felt that the country has potential to attract far more foreign investment which can be achieved by further liberalising and simplifying the FDI regime. India today has been rated as number one FDI destination by several international agencies," the statement added.

 

The changes in the FDI policy, it said, are aimed at liberalising and simplifying the norms with a view to promoting ease of doing business, encouraging greater capital flows and making India an attractive destination for foreign investors.