Foreign direct investment norms in India further relaxed

more+
less-

In a significant development, the Government of India, announced measures to encourage investment by liberalising foreign direct investment norms. Foreign direct investment limits have been raised across several key sectors and the list of sectors eligible for foreign direct investment under the "automatic route" category has been increased.

Based on the recommendations received from the Mayaram Committee in June 2013, the Government has announced the following liberalisation measures:

Foreign direct investment limits has been increased in the following sectors

  • Insurance - Subject to approval from the Indian Parliament, the foreign direct investment limit has been raised from 26% to 49% under the automatic route.
  • Credit Information Bureaus - The foreign direct investment limit has been raised from 49% to 74% under the automatic route.
  • Telecom (basic and cellular services) - The foreign direct investment limit has been raised from 49% to 100%. Foreign direct investment exceeding 49% will need prior approval of the Foreign Investment Promotion Board ("FIPB").
  • Asset Reconstruction - The foreign direct investment limit has been raised from 49% to 100%. Foreign direct investment exceeding 49% will need prior approval of the FIPB.
  • Tea Plantations - The foreign direct investment limit has been raised from 49% to 100%. Foreign direct investment exceeding 49% will need prior approval of the FIPB.
  • Single Brand Retail - The foreign direct investment limit has been raised from 49% to 100%. Foreign direct investment exceeding 49% will need prior approval of the FIPB.
  • Defence Manufacturing - The Government has retained the sector cap for foreign direct investment at 26% (which requires prior approval of the FIPB), but has indicated that the Cabinet Committee on Security has the discretion to approve foreign direct investments exceeding 26% in cases which are likely to result in access to modern and "state of the art" technology, though no criteria to determine the term "state of the art" has been specified.


Foreign direct investments in the following sectors, provided investments are within the investment limits/sectoral caps specified, will no longer require an approval from the FIPB
 

Sector  

Foreign Investment Limit/Sector Cap

Petroleum & Natural Gas Refining

49% 

Commodity Exchanges 

49% 

Power Trading Exchanges 

49% 

Stock Exchanges and Depositories 

49% 

Courier Services 

100% 

The Government's decision to allow 100% foreign direct investment in the telecom sector (basic and cellular services), is a welcome move which help existing foreign operators and investors consolidate their investments in a more transparent manner and operate independently without an Indian partner. One anticipates that this may also bring in fresh funds into the sector.

The above announcements are expected to be confirmed by the Cabinet in the near future and a formal notification is expected to be issued by the Ministry of Commerce and Industry in connection therewith. The liberalization of the foreign direct investment limit in the insurance sector will however require further ratification by the Parliament.

No decisions were however taken with respect to increasing foreign direct investment limits in other key sectors including information broadcasting, civil aviation, petroleum and natural gas and multi-brand retail.