NEW DELHI (Reuters) - India on Monday announced sweeping reforms to rules on foreign direct investment (FDI), opening up its defense and civil aviation sectors to complete outside ownership.
Prime Minister Narendra Modi said the changes would make India “the most open economy in the world for FDI” and provide a “major impetus to employment and job creation”.
Here are the key changes:
The government has allowed 100 percent FDI in civil aviation, of which 49 percent is under the “automatic route”, meaning that it would not require government approval. Beyond 49 percent would need to be approved by the government.
In addition, 100 percent FDI would be allowed in brownfield, or existing, airport projects under the automatic route.
The changes could benefit Gulf carriers such as Qatar Airways and Dubai’s Emirates [EMIRA.UL], which have previously indicated an interest in Indian aviation. Indian aviation firms Jet Airways (JET.NS), Spicejet (SPJT.BO) and Indigo Airlines’ parent InterGlobe (INGL.NS) all ended the day on a high.
The government said it has decided to relax local sourcing norms for up to three years for companies undertaking single brand retail trading. Among these, the companies selling products with “state of the art” and “cutting edge” technology would get another five years of local sourcing exemption.
Apple Inc (AAPL.O) is expected to be a key beneficiary of this provision, as it can immediately open its doors in India, a market it is relying on to offset slowing growth in China and the United States. Single-brand retailers like furniture giant IKEA IKEA.UL also stand to benefit.
The government has allowed up to 100 percent FDI in defense and done away with the requirement of “state of the art” technology while considering FDI cases of above 49 percent investment.
The move comes after India earlier this year outlined plans to focus defense spending more on the domestic market instead of importing combat planes, ships and submarines.
The government has approved 74 percent FDI under the automatic route in brownfield, and beyond that would continue to require government approval.
Analysts said the new norms bode well for foreign drugmakers looking to get a pie of India’s lucrative drugs market, and merger and acquisitions activity in the sector could pick up.
The government has permitted 100 percent FDI under the government approval route for trading, including through e-commerce, of food products made in India.
The government has allowed 100 percent FDI under the automatic route.
The government has permitted up to 49 percent FDI under the automatic route. Beyond 49 percent and up to 74 percent would require government approval.
Current norms allow 100 percent FDI in animal husbandry, pisciculture, aquaculture and apiculture under the automatic route, under “controlled conditions”. Under the changes introduced on Monday, the government said it has done away with the requirement of “controlled conditions”.
Compiled by Mumbai and Delhi newsrooms; Editing by Nick Macfie