Published On : Mon, Jun 20th, 2016

Govt relaxes FDI norms, allows 100% in Aviation and Defence sectors


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New Delhi/Nagpur:
In a strategic move, the Government eased Foreign Direct Investment (FDI) norms for nine sectors, including Defence, Food Products, Civil Aviation, Pharmaceuticals, Broadcasting, Retail Trade, suggesting a plucky drive to push reforms.

The latest move comes two days after Reserve Bank of India (RBI) Governor Raghuram Rajan said he would not seek a second term after September 4, surprising government officials and global investors.

E-commerce companies that hawk India-manufactured food products can now get up to 100% FDI. In Defence, up to 100% FDI has now been allowed without the mandatory condition of bringing in “state-of-the-art” technology by the foreign partners.

Existing rules allowed FDI up to 49% on a case-to-case basis, wherever it is likely to result in access to modern and “state-of-the-art” technology in the country.

Besides, FDI limit for Defence sector has also been made applicable to Manufacturing of Small Arms and Ammunitions covered under Arms Act 1959.

The Sensex jumped 241.01 points to close at 26,866.92 after the new FDI norms were announced.

The government has also relaxed local sourcing norms by up to three years for entities undertaking Single Brand Retail Trading of products having ”state-of-the-art” and “cutting edge” technology.

This will likely benefit Apple’s plans to open its signature stores in India as the government relaxed the condition that stipulates companies to source at least 30% of their components or merchandise for being eligible to set up company-run retail stores in India.

The California-based company, whose CEO Tim Cook was in India recently, had sought easing of this norm to enable it to open the its iWorld stores that sell iPhones, iPads and other proprietary products.
Apple currently has Apple-owned stores across the world, including the US, the UK and China. It sells in India through distributors such as Redington, Ingram Micro and Bettel.

The government also allowed up to 100% FDI in domestic airlines and airports, a move that will enable foreign airlines to start operations in India through fully owned subsidiaries. It will also enable stronger fund flow from overseas airport developers.

“Now most of the sectors would be under automatic approval route, except a small negative list. With these changes, India is now the most open economy in the world for FDI,” said an official statement.
The decision to further liberalise FDI regime with the objective of “providing major impetus to employment and job creation in India” was taken at a meeting chaired by Prime Minister Narendra Modi.
“India has been rated as Number 1 FDI Investment Destination by several International Agencies,” the Prime Minister’s Office tweeted.

This is the second major reform in the FDI space. The Centre in last November had significantly relaxed the foreign investment regime.