Foreign direct investment gets 100 per cent Modi boost

New Delhi: The Centre on Monday allowed foreign direct investment (FDI) up to 100 per cent in the civil aviation and food processing sectors and eased norms for foreign inflows into the pharmaceuticals and defence sectors, among others, in what is being seen as a major reform move that comes days after Dr Raghuram Rajan said he would not seek a second term as governor of the Reserve Bank of India.

This second wave of FDI reforms is seen by many as an attempt by the government to shift focus from Dr Rajan’s impending exit and a signal to investors of its commitment to reforms.

Prime Minister Narendra Modi hailed the move by tweeting that the changes would make India “the most open economy in the world for FDI” and provide a “major impetus to employment and job creation”.

The stock markets reacted positively to the news of the FDI reforms even as they recovered from an early morning plunge after talking-up by influential market men that helped counter jitters about Dr Rajan’s exit.

The last time the government announced major changes in FDI was November 2015, after the Bihar Assembly election results, and that was seen as an attempt to allay concerns that reforms may slow down due to the BJP’s defeat in the state election.

Policy push
Highlights
Centre has announced radical changes in the FDI policy regime with norms being relaxed for many sectors
Broadcasting carriage services
FDI: 100%
Automatic route in teleports, Direct to home, Cable Networks, Mobile TV, Headend-in-the sky Broadcasting Service HITS and Cable Networks

Food processing industry/Food retail
FDI cap: 100%
Approval required: Yes
Foreign companies can trade, including through e-commerce, in respect of food products manufactured.
What does it mean: It is the most important reform, with possible political repercussions. However, fineprint is awaited from the government. It will allow foreign companies to enter the multibrand food retail and e-retail space, which was opposed by BJP tooth and nail during the UPA’s regime. But it will confined to food and not other consumer products.

Civil aviation
FDI: 100 per cent
Approval required: No
Foreign investment in existing airports has been increased to 100% from the current cap of 74%. New airports are already eligible to attract 100% FDI.
What does it mean: It will bring in more funds into airports and help the current operators.

Defence
FDI cap: 49% to 100%
Approval required: Yes
Earlier, the government had made allowing foreign investment over and above 49 per cent contingent on foreign companies bringing state of art technology to India.
Now, the government has done away with this condition.
What does it mean: The government has realised that to attract the big defence players, the foreign investor needs to hold majority stake. This will be a beneficial and long-term move for India as it is majorly dependent on imports of defence equipment. It will attract more foreign investment in the future. It has also applied the same conditions to small-arm makers.