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The Union Cabinet, chaired by Prime Minister Shri Narendra Modi, adopted a proposal to review the Foreign Direct Investment policy on August 28th, 2019. The sectors in which review of FDI policy is proposed, changes will ease FDI regulations for various industries, including coal mining, single-brand retail retailing, and media, among others. Furthermore, the reforms in FDI policy are projected to make India a more attractive investment destination and expedite the country’s economic development and advancement. The modifications aim to liberalise and simplify the impact of the Review of FDI policy to support further the goal of ease of doing business in India, which will result in increased FDI inflows.
History
FDI is a vital driver of economic growth and a non-debt financing source for the country’s economic development. The government has implemented an investor-friendly FDI policy, allowing up to 100 per cent FDI on an automatic basis in most sectors in which review of FDI policy is proposed. In recent years, FDI policy rules have been gradually liberalised across numerous sectors in which review of FDI policy is proposed to make India a more appealing investment destination. Defence, construction development, trading, pharmaceuticals, power exchanges, insurance, pensions, other financial services, asset reconstruction companies, broadcasting, and civil aviation are just a few industries involved.
India has attracted record FDI inflows in the last five years due to these reforms. From 2014-15 to 2018-19, total FDI into India was US$ 286 billion, up from US$ 189 billion in the previous 5-year period (2009-10 to 2013-14). Total FDI inflows in 2018-19, totalling US $ 64.37 billion (provisional figure), are the biggest in any financial year. For the past few years, global FDI inflows have been hampered. According to UNCTAD’s World Investment Report 2019, worldwide foreign direct investment (FDI) flows fell by 13% in 2018, to $1.3 trillion from $1.5 trillion, marking the third consecutive annual fall. Despite the bleak global outlook, India continues to be a popular and appealing destination for foreign direct investment (FDI). However, it is believed that the country can attract significantly more foreign investment, which might be achieved by liberalising and simplifying the FDI policy regime, among other things.
The Finance Minister suggested that the Union Budget 2019-20 further consolidate FDI advantages to make India a more attractive FDI destination. Thus, the government has decided to change the FDI Policy. The next paragraphs go into the specifics of these adjustments.
Major Impact of the Review Of FDI Policy
Changes in FDI policy will make India a more appealing FDI destination, resulting in more investments, job creation, and economic growth.
In the coal sector, 100 percent FDI under the automatic route for coal mining, activities, and associated processing facilities will attract multinational firms, resulting in a competitive and efficient coal market.
Furthermore, contract manufacturing contributes equally to the Make in India goal. The fact that FDI in contract manufacturing is now permissible under the automatic route will significantly boost India’s manufacturing industry.
In his Union Budget Speech,Former Finance Minister Arun Jaitley declared that local sourcing criteria for FDI in Single Brand Retail Trading (SBRT) would be relaxed. This will give SBRT firms more freedom and convenience of operation and level the playing field for enterprises with higher exports in a base year.
Furthermore, allowing online sales before the opening of physical locations aligns policy with current market practices. Jobs in logistics, digital payments, customer service, training, and product skilling will all be created due to online sales.
The above FDI Policy modifications are intended to liberalise and simplify the FDI policy to make doing business in the country easier, resulting in increased FDI inflows and contributing to increased investment, income, and employment.
Contract Manufacturing Sectors in which Review Of FDI Policy is proposed
The current FDI policy allows for 100% FDI via the automatic route in the manufacturing sector. There is no specific provision in the Policy for Contract Manufacturing. To provide clarity on contract manufacturing, it has been agreed to allow 100 per cent FDI in contract manufacturing through the automatic method in India.
Foreign investment in the manufacturing sector is automatically routed according to the terms of the FDI policy. Manufacturing activities can be carried out by the investee business or by contract manufacturing in India under a legally enforceable agreement, whether on a Principal or Principal Agent basis.
Conclusion
Government agencies feel that India might become a desirable FDI destination, bringing many benefits such as increased investment, growth, and employment. International players, for example, can participate in coal mining because the new policy allows for 100% FDI through the automatic method. FDI in Single Brand Retail Trading, can similarly result in employment development in logistics, digital payments, customer service, training, and product skilling. The proposal for a review of foreign direct investment (FDI) in several industries was approved by the Union Cabinet. Foreign Direct Investment (FDI) is a significant engine of economic growth and a non-debt financing option for the country’s economic development.
