After tax sops, govt ushers FDI reforms to propel growth

FDI is a major driver of economic growth and a source of non-debt finance for the economic development of the country.
The government has put in place an investor-friendly policy on FDI, under which investment up to 100 per cent is permitted on the automatic route in most sectors/ activities.
At $ 64.37 billion, FDI in 2018-19 is the highest ever investment received for any financial year.

Illustration: Dominic Xavier/Rediff.com

In a fresh round of FDI reforms, the government on Wednesday allowed 100 per cent foreign investment in coal mining and contract manufacturing, eased sourcing norms for single-brand retailers and approved 26 per cent overseas investment in digital media as it looked to boost economic growth from a five-year low.

Coming within a week of Finance Minister Nirmala Sitharaman unveiling a raft of measures to boost growth, the Union Cabinet headed by Prime Minister Narendra Modi liberalised foreign direct investment (FDI) rules in the four sectors.

"The changes in FDI policy will result in making India a more attractive FDI destination, leading to benefits of increased investments, employment, and growth," Commerce Minister Piyush Goyal told a media briefing after the meeting of the Union Cabinet.

He said 100 per cent FDI under automatic route in coal mining and sale of coal as also associated infrastructure activity has been allowed to help attract international players to create an efficient and competitive coal market.

Also, 100 per cent FDI under automatic route has been allowed in contract manufacturing to give a big boost to domestic manufacturing.

In single-brand retail trading (SBRT), the definition of 30 per cent local sourcing norm has been relaxed and online sales permitted without prior opening of brick and mortar stores.

"Online sales will lead to the creation of jobs in logistics, digital payments, customer care, training and product skilling," he said.

On Friday, Sitharaman had announced tax incentives and some reforms across a variety of sectors in an effort to stimulate slowing economic growth.

After rapidly expanding in last couple of years, India's economic growth momentum has been slipping since the last 3-4 quarters.

Not only did GDP growth fall to a 20-quarter low of 5.8 per cent in January-March, telltale signs of distress are visible in sectors like NBFCs, automobile, real estate, and FMCG.

To pull out the economy from the current slump, the finance minister provided tax relief for foreign portfolio investors (FPIs) and start-ups coupled with targeted steps for the automobile sector and upfront support of Rs 70,000 crore to public sector banks with an aim to revive demand conditions.

Goyal said decisions of the Cabinet on Wednesday are aimed to "liberalise and simplify the FDI policy to provide ease of doing business in the country, leading to larger FDI inflows and thereby contributing to the growth of investment, income and employment".

FDI is a major driver of economic growth and a source of non-debt finance for the economic development of the country.

The government has put in place an investor-friendly policy on FDI, under which investment up to 100 per cent is permitted on the automatic route in most sectors/ activities.

These reforms have led to total FDI into India reaching $ 286 billion in five years from 2014-15 to 2018-19 as compared to $ 189 billion in the previous five-years, he said.

At $ 64.37 billion, FDI in 2018-19 is the highest ever investment received for any financial year.

Presently, 100 per cent FDI under automatic route is allowed in coal and lignite mining for captive consumption in power projects, iron and steel and cement units.

Now, the same has been allowed for sale of coal and mining, including associated processing infrastructure such as coal washery, crushing, coal handling, and separation (magnetic and non-magnetic).

While the extant FDI policy provides for 100 per cent investment under automatic route in the manufacturing sector, there was no specific provision for contract manufacturing in the policy.

In order to provide clarity on contract manufacturing, it has been decided to allow 100 per cent FDI under automatic route in India as well, Goyal said.

Presently, the FDI Policy provides for 30 per cent of the value of goods have to be procured from India if the single brand retailing entity has FDI of more than 51 per cent.

With a view to providing greater flexibility and ease of operations, the Union Cabinet decided that all procurement made from India by such entity for that single brand shall be counted towards local sourcing, irrespective of whether the goods procured are sold in India or exported.

Further, the current cap of considering exports for 5 years only is proposed to be removed to give an impetus to exports.

While the extant FDI policy provides for 49 per cent FDI under approval route in up-linking of News & Current Affairs TV channels, the Cabinet has decided to permit 26 per cent FDI under government route for uploading/ streaming of news and current affairs through digital media on the lines of print media.