Indian Government Changes FDI Policy for Good

On 28 August, Cabinet Committee on Economic Affairs consented to make amendments in the FDI framework.
  • BY Jaspreet Kaur

    Feature Writer, BusinessEx

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  • Aug 30,2019
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  • 11 Mins Read

Indian economy is presently facing headwinds on its pathway. Industries such as automobile, finance, IT and FMCG are declining in the current phase. As a result, the economy is turning sluggish and job cuts are happening massively. In pursuit of shoring up Indian market, the government has relaxed FDI (Foreign Direct Investment) policies.  

The move has been taken to create Indian market an attractive niche for investment. On 28 August, Cabinet Committee on Economic Affairs consented to make amendments in the FDI framework. The amends were made keeping up with the government’s proposals in the recent Union Budget’s speech.  

Liberalising FDI to Uphold Flagging Economy 

To further liberalise FDI rules, the government has mainly made changes in four sectors that are: digital media, coal mining, contract manufacturing, and single-brand retailers. To increment FDI engagement in the country, the regime has raised foreign investment nearly 26 per cent in digital media, 100 per cent in coal mining, as well as in contract manufacturing, and eased local sourcing regulations for single-brand retailers, as reported by the daily news, Money Control.    

These changes in FDI rules can be another attempt of the Modi government to make India a $5 trillion economy.  

Opening doors for Indian Economy 

In 1991, when India was facing an economic crisis, the then-Prime Minister, P. V. Narsimha Rao eased economic reforms to avert the sluggish economy. One of the major economic reforms that Rao adopted was increasing FDI share in the joint venture from 40 per cent to 51 per cent and further, permitted 100 per cent foreign equity in priority sectors. 

With this change, foreign companies forayed in India employed its population and upheld the economy in the 1990s. Similarly, the Modi government has deployed the same strategy and lifted restrictions on FDI policies. 

Earlier on, the Rao government had asked Single Brand Retail Trading (SBRT) companies to recruit 30 per cent local resources. The move was in regards to increase employment and capital infusion in the industry. However, the Modi government has reduced the limit and permitted SBRT companies having FDI companies over 51 percent to syndicate 30 per cent sourcing requirement, as reported by the daily news, Money Control. 

Further, SBRT companies can now open online stores in India without initiating brick-and-mortar stores in the country. Previously, SBRT companies were not permitted to do so. 

Expanding Coal Mining Industry and Contract Manufacturing Industry 

Coal India, which has a monopoly in the coal mining industry, is not able to fulfill coal demands. As a result, the government had imported coal from abroad in 2018, according to the cited media report. 

Seeing this demand and supply gap, the government agreed for 100 per cent FDI in coal mining through the automatic route. With this, newer technologies will surface in the Indian market and further, Coal India’s reign has come to an end. 

Alongside this, 100 per cent FDI is allowed in the contract manufacturing sector via automatic route. It is enabled for the entity, for investment as well as manufacturing, via a concord of principal to principal and principal to agent basis. 

Increase of FDI in Digital Media

Earlier on, FDI policies were overlooked in the digital sector. However, the re-elected government has permitted 26 per cent FDI via government route in media companies, which upload and stream news as well as current affairs.

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