Union Cabinet approves simplification and liberalisation of FDI Policy, 2016

September 1, 2016

The Union Cabinet has given its approval for simplification and liberalisation of the Foreign Direct Investment (FDI) Policy, 2016 in various sectors announced in June, 2016.
The radical amendments to FDI policy are meant to liberalise and simplify the FDI policy so as to provide ease of doing business in the country.
Its main aim is to allow larger FDI inflows in the country that will contribute to growth of investment, incomes and employment.
Changes in FDI Policy regime

  • Defence Sector: FDI beyond 49% has been permitted through government approval route, in cases resulting in access to modern technology in the country or for other reasons.
  • The condition of access of state of the art technology has been removed and it has been modified to access to modern or for other reasons.
  • FDI limit also has been made applicable to Manufacturing of Small Arms and Ammunitions covered under Arms Act, 1959.
  • Food Products manufactured or produced in India: 100% FDI under government approval route for trading in respect of food products manufactured in India.
  • Pharmaceutical Sector: 100% FDI under automatic route in greenfield pharmaceuticals. FDI up to 100% under government approval in brownfield pharmaceuticals also has been approved and 74% FDI under automatic route in Brownfield pharmaceuticals.
  • Civil Aviation Sector: 100% FDI under automatic route in Brownfield Airport Projects. FDI limit raised to 100% in Scheduled Air Transport Service and regional Air Transport Service.
  • Animal Husbandry: 100% FDI allowed in Animal Husbandry (including breeding of dogs), Aquaculture, Pisciculture and Apiculture under Automatic Route without requirement of controlled conditions.
  • Private Security Agencies: 49% FDI permitted under automatic route and FDI beyond 49% and up to 74% will be permitted through government approval route.
  • Establishment of branch office, liaison office or project office: No approval from Reserve Bank of India or separate security clearance would be required.
  • This exemption will be application in cases where FIPB has approved it or license and permission already has be given by the concerned Ministry.
  • Single Brand Retail Trading: Entities undertaking single brand retail trading have been relaxed from local sourcing norms up to 3 years.
  • Entities engaged in of single brand retail trading of products having ‘state-of-art’ and ‘cutting edge’ technology have been relaxed from local sourcing norms up to 5 years.

Comment

  • With these radical changes in FDI Policy, Union government has permitted 100% FDI under government approval route for almost every sector, including defence.
  • However there is still exception in few sectors mentioned in the small negative list. FDI continues to be prohibited in atomic energy, lottery, gambling, real estate and Real Estate Investments Trusts (REIT) and railways operations.

Background

  • Since 2014, Union Government has brought major FDI policy reforms in a number of sectors, including Insurance, Pension Sector, Defence, Construction Development and Broadcasting etc.
  • Measures undertaken by the Union Government have resulted in increased FDI inflows at 55.46 billion dollars in the financial year 2015-16. This was the highest ever FDI inflow in India for a particular financial year. 
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