In a big reform, FDI norms made easier in 15 sectors

Modi government acts within days of Bihar debacle, major impact in defence, aviation, real estate

Seeking to allay concerns that reforms may slow down after the Bihar setback, the Narendra Modi government, in one of the biggest reforms in foreign direct investment on Tuesday, liberalised FDI in 15 major sectors, including defence, civil aviation, real estate and broadcasting, in a bid to boost investment.

The decision, that comes just after the BJP defeat in the Bihar Assembly elections, is seen as a clear signal to investors and the business community that the economic reforms agenda of the Modi government is still on track. The Sensex on Tuesday fell below the crucial 26,000-mark due to concerns over the pace of economic reforms after the Bihar poll results.

The government increased the financial powers of the Foreign Investment Promotion Board (FIPB) to approve investment proposals worth Rs 5,000 crores from the present limit of Rs 3,000 crores. Currently, proposals over Rs 3,000 crores were needed to be cleared by the Cabinet Committee on Economic Affairs (CCEA). Increasing the FIPB’s financial powers means quicker decision-making and faster realisation of proposed foreign investments.

“Today’s FDI-related reforms will touch 15 sectors and benefit the youth. The government’s commitment to development and reforms is unequivocal and unwavering,” Prime Minister Narendra Modi tweeted. He said these reforms were another example of the emphasis on “minimum government, maximum governance”. “They will ease, rationalise and simplify processes,” the PM said.

As per the new policy, FDI upto 49 per cent in defence will now not need any approval. Portfolio investments and investments by foreign venture capital investors (FVCIs) in defence has been increased to 49 per cent from 24 per cent.

Proposals for foreign investment in excess of 49 per cent in defence will now be considered by the Foreign Investment Promotion Board. Earlier, investments above 49 per cent needed the approval of the Cabinet Committee on Security on a case-to-case basis, wherever the investment was likely to result in access to modern and state-of-the-art technology.

The government hiked FDI in cable networks, direct to home (DTH), mobile TV, HITS (headend-in-the sky Broadcasting Service) and teleports to 100 per cent from the current 74 per cent.

It raised FDI in news and current affairs TV channels to 49 per cent (requiring government approval) from the present cap of 26 per cent. As for the uplinking of non-news and current affairs TV channels, 100 per cent FDI has been now permitted under the automatic route. In the case of terrestrial broadcasting

FM (FM radio), the foreign investment limit has been raised from 26 per cent to 49 per cent under the approval route.

In the plantation sector, the government has decided to open up coffee, rubber, cardamom , palm oil tree and olive oil tree plantations for 100 per cent foreign investment under the automatic route. It has now allowed 100 per cent FDI in duty-free shops under the automatic route.

Real estate, facing the burnt of the economic slowdown, saw major changes in FDI rules. A foreign investor will now be permitted to exit and repatriate foreign investment before completion of project under the automatic route, provided that a lock-in-period of three years, calculated with reference to each tranche of foreign investment, has been completed.

Further, transfer of stake from one non-resident to another non-resident, without repatriation of investment, will neither be subject to any lock-in period nor to any government approval. The condition of lock-in-period would not apply to hotels and tourist resorts, hospitals, special economic zones (SEZs), educational institutions, old age homes and investment by NRIs. The government has removed the sub-limit restrictions within the overall limit of 74 per cent for private sector banks to provide greater flexibility to banks and investors.

In private banks, FIIs, FPIs and QFIs can now invest up to the sectoral limit of 74 per cent, if there is no change of control and management of the investee company. In civil aviation, regional air transport service (RSOP) will be eligible for foreign investment up to 49 per cent under the automatic route. At present, foreign investment up to 49 per cent is allowed in Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline (SOP). The FDI cap on ground handling services and credit information companies have now been increased from 74 per cent to 100 per cent.

In the retail sector, a single entity will be permitted to undertake both single-brand retail trading (SBRT) and wholesale, but will have to ensure that conditions of FDI policy on wholesale, cash and carry and SBRT have to be complied by both the business arms separately.

In case of FDI in single-brand retail, the norm to source 30 per cent products locally has been relaxed. It has now been decided that the sourcing requirement has to be reckoned from the opening of the first store. “Further, it is seen that in certain high-technology segments, it is not possible for the retail entity to comply with the sourcing norms. To provide opportunity to such single-brand entities, it has been decided that in case of state-of-art and cutting-edge technology areas, sourcing norms can be relaxed subject to government approval,” the DIPP said. It may help firms like Apple to set up its own stores in India. SBRT will now also be allowed to do e-commerce.

As per the FDI policy, establishment and ownership or control of the Indian company in sectors with caps requires government approval. This provision has now been amended to provide that approval of the government will be required if the company concerned is operating in sectors or activities which are under government approval route rather than capped sectors. Further, no approval of the government is required for investment in automatic route sectors by way of swap of shares.