In what is being considered a major reform move, Narendra Modi’s Government has decided to ease foreign direct investment (FDI) norms in aviation, pharma and defense sectors. The decision to ease norms was taken on Monday at a high-level meeting chaired by Prime Minister Narendra Modi.
100% FDI would now be allowed in scheduled airlines as well as in defense sectors. The government would also allow 74% FDI in pharma sector under the automatic route.
“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,” an official statement from PMO said.
According to analysts, the government’s latest decision is likely to calm foreign investors that were feeling anxious by RBI Governor Dr Raguram Rajan’s decision to exit his job in July.
After the latest decision, the government’s approval will not be required by foreign investors for investing up to 74 per cent in existing domestic companies. Currently, government’s approval is essential for investing in existing companies, although FDI up to 100% is allowed in new pharma projects.
The new changes would also allow 100% FDI under government approval route for trading in respect of food products produced or manufactured in India. Other sectors that would be benefited with the decision are pharmaceuticals, broadcasting, single brand retail among others.
Last year, relaxation of FDI norms in several sectors helped FDI flows to hit an all-time high of $55.46 billion in 2015-16, compared to $36.04 billion during 2013-14. The NDA Government, in the past two years, has also introduced major FDI policy reforms in a variety of sectors like construction development, insurance, defense, pension sector, tea, coffee, rubber, and broadcasting sector, among others.
The government believes this latest move will provide major impetus to job creation and employment in the country.
“This is the second major reform after the last radical changes announced in November 2015. 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,” the government said.
“However, it is felt that the country has potential to attract far more foreign investment which can be achieved by further liberalizing and simplifying the FDI regime,” the statement said.
India stock markets responded positively following the announcement of new FDI norms. BSE Sensex rose over 250 points, while Nifty was edging close to the key 8,250.
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