Govt eases FDI norms in 15 major sectors, including defence, civil aviation

The Government on Tuesday eased FDI norms in 15 major sectors, raising the Foreign Investment Promotion Board (FIPB) approval limit from Rs 3,000 crore to Rs 5,000 crore.

By: ENS Economic Bureau | New Delhi | Updated: November 11, 2015 11:57 am
fdi, fdi norms, fdi norms eased The government also increased the financial power of the Foreign Investment Promotion Board to give single window clearance for investment projects up from Rs 3,000 crore to Rs 5,000 crore.

Close on the heels of the BJP’s defeat in Bihar, the government Tuesday further opened up several key sectors including defence, construction, civil aviation and media to foreign investment, eased norms for businesses such as single-brand retail and private banking and allowed the Foreign Investment Promotion Board (FIPB) to clear proposals up to Rs 5,000 crore from Rs 3,000 crore earlier.

Coming as it does a day before Prime Minister Narendra Modi leaves for the United Kingdom and to Turkey thereon for the G20 Summit, the decisions — all in the domain of the executive — are expected to help him reinforce the government’s narrative on economic reforms and its intent to attract global investors and ease rules for them.


Watch Video: Govt Eases FDI Norms In 15 Major Sectors, Including Defence, Civil Aviation

In defence, the government has allowed foreign investment up to 49 per cent under the automatic route, earlier under the government approval route. Investments over 49 per cent will now be cleared by the FIPB instead of the Cabinet Committee on Security. Portfolio investors and foreign venture capital firms can also invest up to 49 per cent as against 24 per cent earlier.


Prime Minister Modi said these would touch 15 sectors and benefit youth. “Govt’s commitment to development and reforms is unequivocal and unwavering. Today’s reforms are another example of minimum government, maximum governance. They will ease, rationalise and simplify processes. Govt wants the world to see the tremendous opportunities India offers,” the PMO said in a series of tweets.


Also Read: Govt relaxes norms for FDI in defence sector

With private investment stuttering in construction, the government has done away with entry and exit barriers. For instance, area restriction (20,000 sq m) and minimum capitalisation requirement of $5 million to be brought in within six months of commencement of business have been removed. Further, foreign investors can exit and repatriate investments before a project is completed, but with a lock-in of three years.

While India Inc cheered the measures, experts said that a few issues including banking and e-commerce still lacked clarity.

“This announcement made by the government is certainly a move to give higher impetus to the growing economy and will provide an increased level of trust in the system and policy-making apparatus. While more can be said once additional details are out, this move is clearly indicating the intention of the government to provide relaxation of the rules governing foreign direct investment in India with specific reference to specific sectors,” Anil Talreja, partner, Deloitte Haskins and Sells, said.

FDI limits have been hiked in teleports (uplinking hubs), DTH (direct-to-home) and cable networks to 100 per cent with government approval required beyond 49 per cent. Further, news and current affairs TV channels and FM radio companies can now bring in up to 49 per cent FDI under the government route compared with 26 per cent earlier. For non-news and down-linking of TV channels, 100 per cent FDI has been permitted under the automatic route.

At a press conference later in the day, Finance Minister Arun Jaitley said, “FDI is an additionality of resources and it is required if the cycle of economic activity has to take off. In the last few months, growth is being driven by public expenditure, some private investment and increased FDI. While the decision to liberalise FDI norms is for 15 sectors, the investment points impacted by these decisions is 32.”

Jaitley said in the new norms, outdated conditionalities have been done away with and many more areas have been put on the automatic route. “Most important is the construction sector. There has been a slowdown here. Now that interest rates have started easing, the sector will hopefully pick up. The restrictions on capital, area and lock-in period have been highly liberalised,” he said.

In banking, the government has introduced full fungibility, meaning FIIs/ FPIs/ QFIs can now invest up to the sectoral limit of 74 per cent subject to the condition that there is no change in control and management of the private bank. Manufacturers have been allowed to sell their products through e-commerce without government approval.

Another major booster for companies such as IKEA, a single-brand retail company with 100 per cent FDI, has come in the form of dilution in sourcing norms. Earlier, such companies had to ensure sourcing to the extent of 30 per cent of the value of goods from the date of FDI receipt. Now, it has been changed to opening of the first store. In case of “state-of-the-art” and “cutting-edge technology” ventures under the single-brand route, sourcing norms have been relaxed. Further, single-brand retail companies can also undertake e-commerce business, not allowed at present.