Narendra Modi’s government rolls out red carpet for FDI, Apple likely the earliest beneficiary

To boost the investment environment and bring in more foreign investments in to the country, the Union Commerce Ministry today introduced revised Foreign Direct Investment (FDI) norms in pharma, aviation and defence sectors, radically liberalising the FDI regime. “With these changes, India is now the most open economy in the world for FDI," claims the Commerce Ministry, after opening doors for 100 percent FDI under government approval route for almost every sector in India.

This comes as the major reform by the government since November 2015 when the government relaxed FDI norms in 15 sectors including defence, banking, construction, single brand retail, broadcasting and civil aviation. This resulted in the highest FDI inflow for any given year, from $36.04 billion in FY 2013-14 to $55.46 billion in FY 2015-16.

The government maintains a small negative list including lottery, gambling, atomic energy, real estate and railways operations.

Advantage Apple

With the announcement of norms being relaxed for Single Brand Retail Trading, India welcomed brands like Apple and Ikea to open stores. The policy change announced today offers relaxing local sourcing norms up to three years and a relaxed sourcing regime for another five years, a breather for these global companies. This was a demand made by Apple. Earlier, these sourcing norms stipulated companies to locally source at least 30 percent of their components or merchandise for being eligible to set up company-run retail stores in India.

This norm was holding back Apple from opening its own stores. Apple currently sells in India through distributors like Redington, Ingram Micro and Bettel. With these reforms, it can now have its owned 'Apple-owned stores', the way it operates in other countries like the UK, US and China.

Amendment made in the FDI policy

1. Single Brand Retail Trading - Relaxed local sourcing norms for up to three years and a relaxed sourcing regime for another five years for entities undertaking single brand retail trading of products having ‘state-of-art’ and ‘cutting edge’ technology.
2. Food products manufactured/produced – A 100 percent FDI under government approval route for trading, including through e-commerce.
3. Defence sector – Foreign investment beyond 49 percent has now been permitted through government approval route. FDI limit for defence sector has also been made applicable to 'Manufacturing of Small Arms and Ammunitions' covered under Arms Act 1959.
4. Broadcasting carriage services – A 100-percent sectoral cap through automatic route for the sector.
5. Pharmaceutical – A 100-percent FDI approval under automatic route in greenfield pharma and upto 74 percent FDI under automatic route in brownfield pharmaceuticals, and government approval route beyond 74 percent will continue.
6. Civil aviation sector – Nod for 100-percent FDI under automatic route in Greenfield Projects and 100-percent FDI under automatic route in Brownfield Airport projects. This has been amended for 49 percent. With FDI upto 49 percent permitted under automatic route and FDI beyond 49 percent through government approval.
7. Private security agencies - FDI upto 49 percent is now permitted under automatic route in this sector and FDI beyond 49 percent and up to 74 percent would be permitted with government approval route.
8. Establishment of branch office, liaison office or project office - Approval of Reserve Bank of India or separate security clearance would not be required in cases where FIPB approval or licence/permission by the concerned Ministry/Regulator has already been granted.
9. Animal Husbandry - It has been decided to do away with this requirement of ‘controlled conditions’ for FDI in these activities as was required before.

This announcement by the Commerce Ministry is expected to boost the existing FDI inflow, further promoting employment growth in investment and improving infrastructure. It is a major step towards the focus on ease of doing business in India by liberalising and simplifying the FDI policy.