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  June 29th, 2016 | Written by

India Initiates Major Changes in FDI Policy

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  • Under new liberalized Indian FDI regime, most economic sectors don't require government approval for FDI.
  • India is now the most open economy in the world for FDI, according to the government.
  • In last two years, the government of India has reformed FDI policies in a number of sectors.

The government of India has announced a liberalization its foreign direct investment (FDI) regime, with the objective of providing an impetus to employment and job creation in India.

The decision was taken at a high-level meeting chaired by Prime Minister Narendra Modi. This was the second FDI liberalization in India in the last two years.

Most economic sectors are now under an automatic approval route, with the exception of a small list not eligible for the liberalized regime.

“Today’s amendments to the FDI policy are meant to liberalize and simplify the FDI policy,” said a government statement, “so as to provide ease of doing business in the country leading to larger FDI inflows contributing to growth of investment, incomes and employment.”

The statement added that with these changes, India is now the most open economy in the world for FDI.

In the last two years, the government of India has reformed FDI policies in a number of sectors, including defense, construction, insurance, broadcasting, agriculture, retailing, and manufacturing. These measures have resulted in increased FDI inflows of around $20 billion in financial year 2015-16 over financial year 2013-14, according to government figures.

Changes introduced in the latest policy changes include increases in sectoral caps, bringing more activities under automatic route, and easing of conditions for foreign investment. These amendments seek to further simplify the regulations governing FDI in the country.

Among the industry impacted by the latest changes, manufacturing of food products may now by 100 percent FDI. In the defense industries, FDI participation above the current 49 percent is now peremitted and conditions for government approval have been eased.

The current FDI policy on the pharmaceuticals sector provides for 100 percent FDI under the automatic route in greenfield pharma and up to 100 percent under government approval in brownfield pharma. The new policy calls for 74-percent FDI under the automatic route for brownfield pharmaceuticals.

For the establishment of branch offices, defense, telecom, private security, information, and broadcasting companies no longer need approval of the Reserve Bank of India or separate security clearance where approval by the concerned regulator has already been granted.