Indian Economy
Revised FDI Norms
- 29 Aug 2019
- 4 min read
Recently, the Union Cabinet has approved the proposal for the review of Foreign Direct Investment in various sectors.
- This will result in making India a more attractive FDI destination, leading to benefits of increased investments, employment and growth.
- As of now (March 2019), Singapore remains India’s top FDI source, twice that from Mauritius.
Revised Norms
- 100% FDI under automatic route is permitted for sale of coal, for coal mining activities including associated processing infrastructure.
- The government has allowed 100% FDI through the automatic route for contract manufacturing.
- It will augment the Make in India initiative and will attract global companies in India looking to establish alternative manufacturing hubs
Contract manufacturing
- The business model in which a firm hires a contract manufacturer to produce components or final products based on the hiring firm’s design. Companies outsource their production to other companies.
- Contract manufacturing offers a number of benefits:
- Cost Savings: Companies save on their capital costs and labour costs because they do not have to pay for a facility and the equipment needed for production.
- Some companies may look to contract manufacture in low-cost countries, such as India, to benefit from the low cost of labour.
- Advanced Skills: Companies can take advantage of skills that they may not possess, but the contract manufacturer does.
- Focus: Companies can focus on their core competencies better if they can hand off base production to an outside company.
- Economies of Scale: Contract Manufacturers have multiple customers that they produce, it may lead to reduced costs in acquiring raw materials by benefiting from economies of scale.
- Cost Savings: Companies save on their capital costs and labour costs because they do not have to pay for a facility and the equipment needed for production.
- Easing norms for FDI in Single Brand Retail Trading (SBRT): Retail trading through online trade by SBRT, can also be undertaken prior to the opening of brick and mortar stores (it should be opened within 2 years from the date of start of online retail).
- Online sales will lead to the creation of jobs in logistics, digital payments, customer care, training and product skilling.
- It has been decided to permit 26% FDI under government route for uploading/ streaming of News & Current Affairs through Digital Media, on the lines of print media.
- In India, FDI policy provisions have been progressively liberalized across various sectors in recent years to make India an attractive investment destination.
- Some of the sectors include Defence, Construction Development, Trading, Pharmaceuticals, Power Exchanges, Insurance, Pension, Other Financial Services, Asset reconstruction Companies, Broadcasting and Civil Aviation.
- Due to these measures, a total FDI into India from 2014-15 to 2018-19 has been $ 286 billion.
- Despite the dim global picture (UNCTAD's World Investment Report 2019), India continues to remain a preferred and attractive destination for global FDI flows.
- India seeks to use this potential to attract far more foreign investment which can be achieved inter-alia by further liberalizing and simplifying the FDI policy regime.
Foreign direct investment (FDI)
- It is an investment from a party in one country into a business or corporation in another country with the intention of establishing a lasting interest.
- Lasting interest differentiates FDI from foreign portfolio investments, where investors passively hold securities from a foreign country.
- Foreign direct investment can be made by expanding one’s business into a foreign country or by becoming the owner of a company in another country.
