Today majority of the Indians are reaping the benefit of Industrial Liberalization and Globalization of the Indian economy. The then Prime Minister Mr. P V Narasimha Rao with the guidance and support of the then Finance Minister Mr. Manmohan Singh, has made paradigm shift in Industrial Licensing policy, Public Sector Policy, Foreign Investment & Foreign Technology agreement Regulations and Competition Laws (erstwhile MRTP Act) vide new Industrial Policy which was made effective from July 25, 1991.
The author, in commemoration of Silver Jubilee Anniversary of Industrial Liberalization in 1991, has made an attempt to bring the fine details of FDI Inflows and its impact in India post announcement of New Industrial Policy, 1991 (NIP) and also the details of recent FDI regime liberalization.
Government of India has introduced key reforms to the FDI policy, to help attract further investments. To achieve this goal, some measures such as the introduction of the composite cap that does away with the distinction between FDI and Foreign Portfolio Investment (FPI) and liberalizing FDI norms in 15 major sectors have been taken. Higher FDI limits would encourage more investment.
FDI in India has started picking up, which stood at USD16.63 billion in FY2015-16, about 13 per cent higher than 14.69 billion in FY2014-15.
Trends in India’s FDI Inflows, 1996 - 2016
Recent key changes of FDI Regulations
I . Press Note No. 5/2016, dated 24th June, 2016
The Union government on 20th June, 2016 has announced radical changes in FDI Regulations and the said changes have been made effective by virtue of Press Note No. 5/2016, by which the following major changes have been made in FDI regulations to give impetus for employment and job creation and also for enhancing the FDI flows into India
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- Permission of 100% FDI under government approval route for trading, including through e-commerce, in respect of food products manufactured or produced in India.
- Foreign investment beyond 49% has now been permitted through government approval route, in cases resulting in access to modern technology in the country or for other reasons to be recorded. The condition of access to ‘state-of-art’ technology in the country has been done away with.
- FDI limit for defence sector has also been made applicable to Manufacturing of Small Arms and Ammunitions covered under Arms Act 1959.
- 100% FDI under automatic route is permitted for Broadcasting Carriage Services (Mobile TV, DTH, Teleports, Cable Networks and HITS)
- In case of Pharmaceutical Sector, 74% FDI in Brownfield Projects is made under automatic route. FDI beyond 74% for Brownfield Projects is under government route. The Greenfield Investment is permitted upto 100% under automatic route
- Civil Aviation Sector is also permitted upto 100% FDI in both Brownfield Projects and the Greenfield projects
- In case of Private Security Agencies, the FDI is permitted upto 49% under automatic route and under government approval beyond 49% and upto 74%. However Section 6 of the Private Security Agencies (Regulation) Act, 2005 need to be amended to accommodate the above FDI changes.
- In case of Animal Husbandry, the condition related to “Controlled Conditions” has been done away
- In case of Single Brand Retail Trading (SBRT), the condition related to 30% local sourcing of goods is relaxed for 3 years of establishment and may relax upto 5 years of establishment with the government approval. FDI into SBRT upto 49% is permitted under automatic route and under government route for FDI beyond 49%
- Press Note No. 12/2015, dated 24-11-2015
- The Government has permitted the 100% FDI into Manufacturing Companies (Subject to the sectoral caps and conditions stated for selective list of industries) under automatic route.
- FDI into LLP is almost made at par with Companies thereby paving the way to use LLP structure of business for most of the business activities.
- For swapping of shares (i.e., Exchange of Shares of the Indian Company between the Resident Investors and the Foreign Investors with Shares of Foreign Entity), no approval of Government is required, if the transaction otherwise falls under automatic route.
- Incorporated Foreign entities (viz., Companies, Partnership firms and Trusts) controlled by the NRIs is equated with the NRIs and can avail all the benefits of NRIs.
- The Limits for approval of FIPB has been enhanced from Rs. 2,000 Crores to Rs. 5,000 Crores, thereby the cases to be referred to Cabinet Committee on Economic Affairs (CCEA) will be reduced.
- Many plantation activities (coffee, rubber, cardamom, palm oil, olive oil) have been brought under automatic route, over and above the tea plantation activities.
- Defence production has been opened for FDI upto 49%, subject to the conditions stated therein.
- In case of Construction and Development Activities, the condition relating to minimum project size and minimum investment size has been done away and necessary changes have been brought in other related conditions.
- Many changes have been introduced in Single Brand Retail Trading
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FDI Inflows - India's Trajectory |
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Conclusion:
Post the above key changes, now very few sectors/industries have been left over for approval from the Government for FDI investments.
The NIP followed with the above key recent changes are further bolstered with the key reforms of the Government viz., “Make in India” and “Ease of doing Business”
Post the Britain Exit Referendum (Brexit) for exit from EU, India is poised to play key role in the World Economy and is becoming silver line in the dark clouds of economic turmoil across the global economies and many countries will select India as a favorable FDI destination.
