Union Government grants 100% FDI in Defence Sector by making comprehensive changes in FDI Policy regime

The Union Government on 20 June 2016 radically changed the Foreign Direct Investment (FDI) Policy regime with the objective of providing major impetus to employment and job creation in India.

Changes introduced in the policy include increase in sectoral caps, bringing more activities under automatic route and easing of conditionality for foreign investment. These amendments seek to further simplify the regulations governing FDI in India.

Radical Changes in FDI Policy regime
• Radical Changes for promoting Food Products manufactured/produced in India: To permit 100 percent FDI under government approval route for trading in respect of food products manufactured in India.
• FDI in Defence Sector up to 100%: FDI beyond 49% has been permitted through government approval route, in cases resulting in access to modern technology. FDI limit for defence sector has also been made applicable to Manufacturing of Small Arms and Ammunitions covered under Arms Act, 1959.
• Review of Entry Routes in Broadcasting Carriage Services: 100 percent FDI allowed under automatic route for Teleports, Direct to Home, Cable Networks and Mobile TV. Moreover, infusion of FDI beyond 49% in a company not seeking permission from Ministry will result in change in the ownership pattern.
• Pharmaceutical Sector: 100% FDI under automatic route in Greenfield pharma, FDI up to 100% under government approval in Brownfield pharma and 74% FDI under automatic route in Brownfield pharmaceuticals.
• Civil Aviation Sector: To permit 100% FDI under automatic route in Brownfield Airport projects. In Scheduled Air Transport Service and regional Air Transport Service, it has now been decided to raise FDI limit to 100%. For NRIs, 100% FDI will continue to be allowed under automatic route.
• Private Security Agencies: FDI up to 49% is now permitted under automatic route in this sector and FDI beyond 49% and up to 74% would be permitted with 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 in cases where FIPB approval or license/permission by the concerned Ministry has already been granted.
• Animal Husbandry: It has been decided to do away with the requirement of controlled conditions for FDI in Animal Husbandry, Pisciculture, Aquaculture and Apiculture.
• Single Brand Retail Trading: It has been decided to relax local sourcing norms up to three years and a relaxed sourcing regime for entities undertaking Single Brand Retail Trading of products having cutting edge technology.

Comment
In last two years, Union Government has brought major Foreign Direct Investment (FDI) Policy reforms in a number of sectors. Measures undertaken by the Government have resulted in increased FDI inflows at 55.46 billion US dollars in financial year 2015-16.

This is the highest ever FDI inflow for a particular financial year. However, it was felt that the country has potential to attract more FDI which can be achieved by further simplifying the FDI regime.