The Union government on Monday radically liberalised the FDI regime by permitting 100 per cent foreign direct investment (FDI) under government approval route for almost every sector, including defence.
"With these changes, India is now the most open economy in the world for FDI," said a Commerce Ministry statement.
This is the second biggest reform in FDI after November 2015.
The defence sector is now completely opened up to FDI through government approval route, in cases resulting in access to modern technology in the country or for other reasons to be recorded. The condition of access to ‘state-of-the-art’ technology in the country has been done away with.
The government has permitted 100 per cent FDI in civil aviation, animal husbandry and trading, including through e-commerce, in respect of food products manufactured or produced in India.
The government has decided to relax 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-the-art’ and ‘cutting edge’ technology.
"We will inform Apple to indicate whether they would like to avail of the new provisions," DIPP (Department of Industrial policy and Promotion) Secretary Ramesh Abhishek said, while briefing the media at Udyog Bhavan in New Delhi.
Apple Inc. had applied for exemption from 30 per cent local sourcing norm, saying it will not be possible to source as much from India as they manufacture products having "state-of-the-art and cutting-edge technology."
Though a DIPP secretary-led panel had exempted Apple from local sourcing norms, the Finance Ministry had rejected the panel's recommendation on the same.
The FDI policy on broadcasting carriage services has also been amended to enable 100 per cent FDI in teleports, DTH, Cable Networks, mobile TVs, and Headend-in-the Sky Broadcasting Service.
FDI continues to be prohibited in lottery, gambling, atomic energy, real estate and Real Estate Investments Trusts (REIT) and railway operations.
Pharma sector too opened up
The extant FDI policy on pharmaceutical sector provides for 100% FDI under automatic route in greenfield pharma and FDI up to 100 per cent under government approval in brownfield pharma. With the objective of promoting the development of this sector, it has been decided to permit up to 74 per cent FDI under the automatic route in brownfield pharmaceuticals and government approval route beyond 74 per cent will continue.
Mr. Abhishek said: "We have been working on reforming FDI policy for quite sometime."
He said the government had undertaken FDI reforms to make sure that the entire country benefited from it. "These reforms will promote employment, improve infrastructure, and lead to greater FDI inflows. There is already healthy growth in FDI inflows due to the reforms we have already announced so far. These will further improve ease of doing business in india."
Asked if the timing of the announcement was to ensure a positive narrative on the Indian economy following Raghuram Rajan declining a second term as RBI Governor, Mr. Abhishek said "it has got nothing to do with that. Today is a good day, so why not announce it today."
On Rajan's tenure
Commerce Minister Nirmala Sitharaman said the government's position on Mr. Rajan was very nicely explained by Finance Minister Arun Jaitley. The government respected Mr. Rajan's tenure, she added.
Asked whether Mr. Rajan's tenure was the shortest, she said, "When [former] Prime Minister [late] Rajiv Gandhi was in power, an RBI governor was appointed and removed in just 20 days."
Prime Minister Narendra Modi on Monday reviewed the FDI policy. The meeting was attended by representatives of NITI Aayog, Ministries of Finance, Commerce and Industry, and Home.