Radical Liberalisation of the Indian Market Amendments in FDI Policy

Ahead of Budget 2018, Government on 10th January, 2018 found another opportunity to bring some big bang reforms in the Foreign Direct Investment FDI policy of India. Major decision in concern were taken by the Union Cabinet headed by Prime Minister Narendra Modi, giving approval to a number of amendments, focused on liberalization and simplification of policy measures required for ease of doing business in the country. As suggested by the Union Cabinet, the new policy measures were economy driven and were expected to be beneficial for bringing large FDI inflows, which will lead to long term growth of economy in terms of investments, income and employment.

FDI is a growth driver and an effective source of generating non-debt finance for the country. In the last round of FDI changes, Government experienced major improvements in FDI inflows of the country, as it substantially raised to US $45.15 billion in 2014-15 as against US $ 36.05 billion only in 2015-16. Also, ‘with no further changes in FDI policy of 2016, an all time high investment of  US $ 60.08 billion was received, stating results to be ‘unpredictedby the official report of  Cabinet.

Some altered moves of the FDI Policy have been discussed below:

  • Ongoing discussion with the members, the cabinet allowed 100% FDI under automatic route for single brand retail trading, which no doubt was in existence earlier but required a procedure of Government approval. Relaxing to not only single brand retail trading norms they also occupied ease in FDI in various medical devices and audit firms receiving funds from abroad.
  • A decision also came to approve foreign airlines to invest up to 49% in Indian Air line ‘Air India’, which showed a total debt of about Rs. 48,877 crore at the end of March 2017, of which about Rs. 17,360 crore were appropriated to aircraft loans and Rs. 31,517 crore were considered for working capital loans. The airline is expected to report a net loss of Rs. 3,579 crore for 2017-18, as being estimated from a provisional loss of Rs. 3,643 reported for 2016-17.
  • For power exchanges, the overseas investment policy have been liberalised and been given 49% FDI under automatic route.
  • To earlier policy FII/FPI were restricted to only secondary market purchases, with new provision as stated crucial by cabinet, FIIs/FPIs  have been allowed to invest in Power Exchanges through primary market as well seeking to more effective chances of FDI from them.
  • Liberalising the real estate sector, Government decided to clarify ‘the real estate broking service to be out of real estate businesses’ and decided to state its eligibility for 100% FDI under automatic route.
  • To define the actual stake of medical devices under Drugs and Cosmetics Act, 1940, it was decided to amend the state of definition of medical devices under the Act, while complete details of the provision was not yet explained.
  • A provision related to Issue of Shares under the automatic route was also incapacitated, where the cabinet permitted to allow FDI on issue of shares against non cash considerations like import of machinery, pre incorporation expenses etc.
  • It was decided to remove restrictive conditions on foreign investors and investee companies wishing to specify a particular auditor/ audit firm having international network for an Indian investee company, and allowed to carry a joint audit of the Indian investee company along with an auditor who is not part of the same network.

With recommended changes in the new FDI policy, The Commerce And Industry Minister Suresh Prabhu said‘ the Government had decided to remove roadblocks for receiving FDIs in India and it is expected that relaxation of these norms will lead to faster and sector specific development of the country.’

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Team MN & Associates