Last Monday, the Government decided to relax the Foreign Direct Investment (FDI) regulations in key sectors like Pharma, Defence, and Aviation. This substantial reform in FDI norms came right after Raghuram Rajan announced that he won’t continue this year as the Governor of RBI.
The Government also eased single brand retail trading norms, which means that the tech-giant Apple (AAPL) can open stores in the country as well; same goes for IKEA, which is a furniture giant.
Kindred companies will be able to benefit out of the three-year relaxation on the local sourcing norms, which is extendable up to five years, according to Government discretion of course.
Analysts are stating that this relaxation will help reduce stress levels of a lot of foreign investors. Meanwhile, these decisions were taken during a meeting chaired by the Prime Minister of India.
PM Narendra Modi also informed that through these FDI relaxations, they are striving to make India (which is the 3rd largest Asian economy at present) as the most open economy in the entire world.
The Government has a reason to believe that the relaxation in FDI norms will help generate jobs, which in turn will reduce the unemployment percentage. It is imperative to note here that during the last year, Government had relaxed FDI norms pertaining to a dozen sectors which led to an all-time high of $55.46 billion, in terms of FDI flows.
With these new norms, Pharma sector is open for almost 74 percent FDI under the automatic route. Whereas, 100 percent FDI has been allowed in Scheduled Airlines (49 percent under automatic route).
However, for the crucial Defense sector, Foreign companies can own 100 percent equity whereas 49 percent under the automatic route has been permitted under the new rule. But FDI above 49 percent is not possible, until and unless approved by the Government.