Govt okays 100% FDI in defence, aviation to calm investors after Rexit

New Delhi: In a bid to soothe nerves of foreign investors shaken by the impending exit of RBI chairman Raghuram Rajan, the government on Monday approved 100 per cent Foreign Direct Investment (FDI) in defence and aviation sectors.

FDI limit for defence sector has also been made applicable to Manufacturing of Small Arms and Ammunitions covered under Arms Act 1959.

The government also approved up to 49 per cent FDI in Private Security Agencies under automatic route and FDI beyond 49- 74 per cent will be permitted with government approval.

Officials met earlier at the Prime Minister's office to discuss FDI changes that appeared timed to regain the initiative after the surprise announcement by central bank chief Raghuram Rajan at the weekend that he would not seek a second term.

Other sectors in which FDI norms have been relaxed include e-commerce in food products, broadcasting carriage services, private security agencies and animal husbandry.

"Now most of the sectors would be under automatic approval route, except a small negative list. With these changes, India is now the most open economy in the world for FDI," said an official statement.

The decision to further liberalise FDI regime with the objective of "providing major impetus to employment and job creation in India" was taken at a meeting chaired by Prime Minister Narendra Modi on Monday.

The last time the government announced a loosening of India's complex FDI rules was following a shock defeat for Bharatiya Janata Party in a state election last year.

This is the second major reform in the FDI space. The Centre in last November had significantly relaxed the foreign investment regime.

As regards single-brand retail trading (SBTR), it has been decided to relax local sourcing norms for up to three years and a relaxed sourcing regime for another five for entities undertaking SBTR of products having 'state-of-art' and 'cutting edge' technology.

With the objective of promoting the development of pharma sector, it has been decided to permit up to 74 per cent FDI under automatic route in brownfield projects and continue the present system of approval route beyond 74 per cent.

Under the existing policy, 100 per cent FDI is allowed under automatic route in greenfield pharma and 100 per cent under government approval in brownfield pharma.

In case of private security agencies FDI up to 49 per cent is now permitted under automatic route and up to 74 per cent under the government approval route. The current policy permits 49 per cent FDI under government approval route in private security agencies.

The government has also permitted 100 per cent FDI under automatic route in several wings of the broadcasting carriage services which include teleports, direct-to-home, cable networks, mobile TV and headend-in-the sky broadcasting service.

However, the statement said: "Infusion of fresh foreign investment beyond 49 per cent in a company not seeking licence/permission from sectoral ministry, resulting in change in the ownership pattern or transfer of stake by existing investor to new foreign investor, will require FIPB approval."

In order to promote manufacturing of food items, the government decided to permit 100 per cent FDI under approval route for trading, including through e-commerce in respect of such products manufactured or produced in India.