India Liberalizes Foreign Direct Investment Rules

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The Union Minister for Environment, Forest & Climate Change and Information & Broadcasting, Shri Prakash Javadekar and the Union Minister for Railways and Commerce & Industry, Shri Piyush Goyal briefing the media on Cabinet Decisions, in New Delhi on August 28, 2019.

Coal Mining, Contract Manufacturing, Digital Media Opened Up; Single-Brand Retailers Can Start Online Sales As Well

NEW DELHI: India decided Wednesday to liberalize foreign direct investment in domestic manufacturing, coal mining and digital media, and also allow single-brand retailers to start online sales to infuse capital into the country and boost its economy.

Commerce and Industry Minister Piyush Goyal said the Cabinet approved 100% foreign direct investment in coal mining and associated infrastructure. He said it also approved 100% foreign investment in contract manufacturing and up to 26% investment in digital media.

The government made the decision as it grappled with a slowing of economic growth to a five-year low of 5.8% in the January-March quarter, with consumer spending and corporate investment faltering. Declining industrial output and automobile sales also raised fears of a deeper slowdown.

The government also relaxed the 30% local sourcing requirement in single-brand retailing and permitted online sales without the prior opening of brick-and-mortar stores. “Online sales will lead to the creation of jobs in logistics, digital payments, customer care,  training and product skilling,’’ Goyal said. The decision may come as a relief for multinational companies like Apple which are facing tough times in the Indian smartphone market because of stiff competition from Chinese makers.

“The changes in foreign direct investment policy will result in making India a more attractive FDI destination, leading to the benefits of increased investment, employment and growth,’’ Goyal said. Last week, the government rolled back a surcharge on foreign portfolio investment and announced steps to lower interest rates on home and auto loans to shore up the economy.

Rajiv Kumar, chairman of the government-run Policy Commission, called for immediate steps by the government to tackle poor liquidity and weak private investment. He warned that India has not faced this kind of a situation for 70 years.

In the digital media sector, currently, 49 per cent FDI is provided under the approval route in news channels.

Commenting on the FDI approval, Jehil Thakkar, Partner, Deloitte India said: “FDI in digital media is a welcome development. Clarity around this fast-growing segment of the media industry will act as an enabler for capital infusion.

“Significant value will be unlocked in going forward,” he added.

Meanwhile, seeing a big opportunity in Sino-US trade war, India has identified some of the global manufacturers across various sectors that could be approached for making investments in the country. They could be persuaded to manufacture items that are being subject to higher import tariff from the US as they originate from China. Some of the areas in which these global firms could invest are telecom, automobile and pharmaceuticals.

iPhone maker Apple and Taiwan-based contract manufacturer Pegatron Corp are some of the companies that India is eyeing for setting up their facilities.

The recent trade conflict between US and China with both countries raising tariffs, taking a tit-for-tat approach, have increasingly been making the trade of goods worth billions of dollars unviable. This has disrupted supply of global suppliers which used China as a hub for manufacturing.

As a result, some of these manufacturing giants have started looking for new countries where they could move their investment. Vietnam and Thailand have seen some of the investment flowing in and India could emerge as major manufacturing destination.

“A plan has been there to attract companies leaving China owing to trade war concerns,” said an official aware of the development.

Presenting the Union Budget for FY20 last month, Finance Minister Nirmala Sitharaman had said that in order to boost economic growth and Make in India, the government will launch a scheme to invite global companies to set up mega manufacturing plants in sunrise and advanced technology areas such as semi-conductor fabrication (FAB), solar photo voltaic cells, lithium storage batteries and laptops.