SKP Business Alert
Volume 8 Issue 4 |
Government liberalises FDI norms
To boost the employment and job creation in India, the government, in a meeting chaired by Prime Minister Narendra Modi on 20 June 2016, further liberalised the foreign direct investment (FDI) regime. These changes come as a part of the second round of reformative steps following the initial announcement in November 2015. Now, most sectors would fall under the automatic approval route, except for a small negative list.
As per the announcement, changes introduced in the policy include increasing sectoral caps, bringing more activities under the automatic route and easing of conditionalities for foreign investment. These amendments seek to further simplify the regulations governing FDI in the country and make India an attractive destination for foreign investors. Details of these changes are given below.
Sector Changes in FDI norms Sectoral Cap Liberalisation
Food industry FDI under the government approval route for trading, including through e-commerce, with respect to food products manufactured or produced in India, is permitted 100% FDI allowed in the sector.
Defence sector FDI permitted under:
  • Automatic Route - 49%
  • Government approval route - Beyond 49%
FDI beyond 49% is allowed under the government approval route for cases resulting in the access to modern technology in the country or for the reason to be recorded.
The condition of access to ‘state-of-art’ technology has been done away with.
Pharmaceutical Brownfield
  • Automatic route - 74%
  • Government approval route - Beyond 74%
100% FDI up to 74% in brownfield projects is allowed under the automatic route.
Broadcasting carriage services New entry routes/sectors introduced:
  1. Teleports (setting up of up-linking HUBs/teleports);
  2. Direct to Home (DTH);
  3. Cable networks (Multi System Operators (MSOs) operating at a national or state or district level and undertaking upgradation of networks towards digitisation and addressability);
  4. Mobile TV;
  5. Headend-in-the-Sky broadcasting services (HITS)
  6. Cable networks
Infusion of fresh foreign investment, beyond 49% in a company not seeking license/permission from a sectoral ministry, resulting in a change in the ownership pattern or transfer of stake by existing investors to new foreign investors, will require FIPB approval.
100% The entry route for the sector has been reviewed and new sectoral caps have been prescribed.
Civil aviation sector Brownfield
  • Automatic route- 100%

Scheduled Air Transport Service/Domestic Scheduled Passenger Airline and regional Air Transport Service
  • Automatic route - 49%
  • Government approval route - Beyond 49%


100% FDI in brownfield projects is allowed under the automatic route.

FDI up to 49% is allowed under the automatic route and beyond 49%, under the government approval route.
Private security agencies FDI permitted under:
  • Automatic route - 49%
  • Government approval route -  49% to 74%
74% FDI up to 49% is allowed under the automatic route and beyond 49% but up to 74% is permitted under the government approval route.
Animal husbandry FDI in animal husbandry (including breeding of dogs), pisciculture, aquaculture and apiculture is permitted under the automatic route. 100% It has been decided to do away with the requirement of ‘controlled conditions’ for FDI in these activities.
Other changes in the FDI Policy
Establishment of branch office, liaison office or project office
If the principal business of the applicant is defence, telecom, private security or information/broadcasting and it proposes to establish a branch office, liaison office, project office or any other place of business in India, there is no need for RBI approval or separate security clearances (where FIPB approval or license/permission by the concerned Ministry/Regulator has already been granted).

Single brand retail trading
Approval for the proposed relaxed local sourcing norms 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.

The aforesaid changes introduced in the FDI Policy will take effect as per due process.
SKP's comments
The objective of liberalising FDI norms is to stimulate job creation. With these reforms, most of the sectors are under the automatic route with a small negative list. This further simplifies the FDI Policy and brings more clarity to foreign investors. Changes in the food industry will facilitate investment in back-end infrastructure and supply-chain management, and will also curb waste. The removal of ‘state-of-art’ technology will allow foreign companies to set up their manufacturing facilities in India which will pave the way for accessing modern technology. Job creation will also help India become self-sufficient in defence procurements. As the Indian pharmaceutical companies are competing globally, the sector has been liberalised further and with greater participation of foreign investment, there could be a possibility of mergers and acquisitions in this space. The reform in the aviation sector comes shortly after unveiling the National Civil Aviation Policy. This will further benefit the civil aviation sector and its modern infrastructure needs. The relaxation in local sourcing norms will allow foreign players in single brand retail to cater to the Indian market.
Apart from this, the government's commitment towards the 'Make in India' objective and the series of reforms supporting it seems promising.
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