Major reforms in Foreign Direct investment policy of India


In the advent of massive campaign for #MakeInIndia, the rules and laws of India is also being aligned to attract foreign direct investments to various sectors. During past one year the Foreign Direct Investment Policy of India (FDI Policy) has been amended several times to accommodate more investments. I am briefing upon the initiatives of Government to relax the stringent norms of FDI. The Government of India had eased FDI norms for 15 major sectors and the same is a welcome move from Industry and entrepreneurial perceptive.


Infrastructure development:- It is now permitted to bring 100% Equity capital for the construction and development of Townships, shopping complexes & business centres under automatic route. Conditions on minimum capitalization & floor area restrictions have now been removed for the construction development sector. FDI policy on Construction Development sector has been liberalised by relaxing the norms pertaining to minimum area, minimum capitalisation and repatriation of funds or exit from the project. To encourage investment in affordable housing, projects committing 30 percent of the total project cost for low cost affordable housing have been exempted from minimum area and capitalization norms .This relaxation is expected to boost the construction sector which is now in a slow moving phase and thereby energize the economy of the Country.

Defense sector :- India's defense sector now allows consolidated FDI up to 49% under the automatic route. FDI beyond 49% will now be considered by the Foreign Investment Promotion Board. Government approval route will be required only when FDI results in a change of ownership pattern.


Banking Sector:- Banks are now permitted to raise consolidated FDI upto 74% of its capital base.


Plantation Sector:- Up to 100% FDI is now allowed in coffee/rubber/cardamom/palm oil & an olive oil plantation via the automatic route. It was a banned sector earlier even for NRIs. This is an area in which the Government should establish a vigil mechanism due to the extent of land involved in the plantation sector.


Ecommerce Platforms :- Manufacturers can now sell their products through wholesale and/or retail, including through e-commerce without Government Approval. I had written a separate blog on the said subject and the same is available in the link given “An Article on FDI in Ecommerce platforms"


Relaxation on Investment by NRI’s in restricted sectors

Investment by NRIs under Schedule 4 of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations will be deemed to be domestic investment at par with the investment made by residents . As a result of the same NRI’s are now permitted to purchase shares or convertible debentures of an Indian company if the company concerned is a Chit Fund or a Nidhi company or is engaged in agricultural/plantation activities or real estate business or construction of farm houses or dealing in Transfer of Development Rights.


Picture Courtesy- Money Control