The government decision to liberalise conditions allowing 100 per cent FDI in the defence sector may result in at least some foreign entities setting up subsidiaries in India, said industry experts. This is the second major step taken after the one in November 2015, to improve certain pain points for large multinationals to do business in India.
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Prime Minister Narendra Modi announced new Foreign Direct Investment (FDI) norms on June 20, 2016, easing out trade of food retail, airlines, defence, pharmaceuticals, Direct to Home (DTH) services, single branded retail and private security agencies.
The announcement also said that foreign investors would be able to build new airports. At present Etihad owns 24% of Jet Airways, while AirAsia and Singapore Airlines hold 49% stakes in AirAsia India and Vistara respectively. To boost airport development and modernisation, 100 pc FDI in existing airport projects has also been allowed without government permission, which was earlier 74 pc. Till now FDI beyond 74 per cent in brownfield projects needed government approval. Now, while the cap has been raised to 100 per cent, up to 49 per cent would be under automatic and beyond that will be under the government approval routes, officials said.
The current FDI regime permits foreign companies to own 49 per cent in Indian units through the automatic approval route.
“Liberalization of the FDI regulations reflects the government’s commitment to reforms and openness, and reassures investors that ease of doing business remains high priority”.
“Foreign airlines would continue to be allowed to invest … in [Indian] air transport companies [but] up to a limit of 49% of paid up capital”, it said.
– Foreign equity of 100 per cent under government approval for trading in processed foods, including via e-commerce, in respect of products manufactured in India.
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“This decision will now bring in real investments provided the defence ministry also speeds up the procurement process and issues big-ticket orders”. But this 100 per cent FDI allowance can bring remarkable changes in near future also. “If this is indeed the case, this move would adversely impact the fate of several companies, especially in the technology space that were hoping for a complete waiver on the grounds that the products proposed to be sold involved state of the art technology”. It has been made a decision to do away with this requirement of controlled conditions for FDI in these activities.
