India’s equity and currency markets, which fell sharply in early morning trade on Rajan’s announcement, rebounded cheering the new FDI norms.
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“What will happen with a flexible FDI?”.
“‘State of the art” is subjective and could have led to a political witch-hunt later and hence most foreign companies were wary of using this provision”, said Amber Dubey, partner and India head of aerospace and defense at the business consulting firm KPMG. “But before that they should prioritise what their need is”, he added.
It was only last November that the government undertook an overhaul in the FDI regime targeting more than a dozen sectors including construction, airport services, banking, defence, broadcasting, etc. Monday’s measures are a continuation of the progressive liberalisation process.
Under the new rule 49 per cent FDI in defence will be allowed under the automatic route, and beyond that government approval is mandatory.
Contending that the Modi government had made India a “junior partner” of the USA, it said FDI reforms in defence sector will make the country dependent on American/Israeli “clique”.
India’s pharmaceutical market may reach $20 billion this year and about $55 billion by 2020 from about $18 billion as of 2014, clocking a compounded annual growth rate (CAGR) of over 22%, according to a joint study by the Associated Chambers of Commerce & Industry of India (ASSOCHAM)-TechSci Research released in June.
Due to the current FDI restrictions, India was losing out on a number of foreign companies who were keen on developing India as a “home market”, to other destinations like South Africa, Mexico, Morrocco, South East Asia etc.
“It might be the government’s way to illustrate its commitment to reforms and mitigate any investor fallout following [Mr] Rajan’s decision”, he told Reuters news agency.
“Amendments in FDI policy to promote ease of doing business”.
For instance, why cap foreign airline stake in Indian companies at 49 per cent when you do away with the FDI cap or in other words allow 100 per cent FDI?
The government lifted overseas investment ceilings for civil aviation, defence, pharmaceuticals, multi-brand food retail and eased so-called restrictive conditions for single brand retail.
Single-brand foreign retailers can now operate stores for three years before having to comply with local sourcing rules – and for five years if they can prove their products are “cutting edge” or “state-of-the-art”.
Perhaps the biggest step, some said, was to permit 100 percent foreign investment for trading in food products that are produced locally.
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In a second tweet, he said the changes would provide a “major impetus to employment and job creation in India”.
