Union Cabinet announces relaxations in FDI norms

Though India has been recording higher foreign direct investment (FDI) inflow every passing year, it has the potential to attract far more foreign investment through further policy amendments. Accordingly, the Union Cabinet has approved the proposal for a review of Foreign Direct Investment in various sectors, as per an official announcement on August 28. 

Some of the major expected benefits from the FDI Policy Reform are: 

1. In the coal sector, for the sale of coal, 100% FDI under automatic route for coal mining and activities (including associated processing infrastructure) will attract international players 
2. Further, as manufacturing through contract contributes to the objective of Make in India, FDI being permitted under automatic route in contract manufacturing will be a big boost to the manufacturing sector 
3. Easing local sourcing norms for FDI in Single Brand Retail Trading (SBRT) was announced in the Union Budget Speech of the Finance Minister. This will lead to greater flexibility and ease of operations for SBRT entities, besides creating a level playing field for companies with higher exports in a base year. It will also lead to creation of jobs in logistics, digital payments, customer care, training and product skilling.

The above amendments to the FDI Policy are meant to liberalize 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.

Global FDI inflows have been facing headwinds for a few years. As per UNCTAD’s World Investment Report 2019, global FDI flows slid by 13 per cent in 2018 – the third consecutive annual decline. Despite the dim global picture, India continues to remain a preferred destination for global FDI flows. 

Foreign Direct Investment (FDI) is a major driver of economic growth and a source of non-debt finance for the economic development of India. The Government has put in place an investor-friendly policy on FDI, under which FDI up to 100 per cent is permitted on the automatic route in several sectors (including Defence, Construction Development, Trading, etc). 

FDI policies have been progressively liberalized in recent years, resulting in India attracting record FDI inflows over the past 5 years. Total FDI into India in 2018-19 i.e. US$64.4 billion (provisional figure) was the highest ever FDI received for any financial year.