Year End Review- Major FDI Policy Changes

Government has put in place an investor-friendly policy on FDI, under which FDI, up to 100% is permitted, under the automatic route, in most sectors/activities. FDI policy is reviewed on an ongoing basis, with a view to making it more investor friendly.  FDI helps in the economic growth of the country by supplementing the domestic capital, bringing technology transfers, global best practices leading to increased manufacturing and productive capacity. Overall growth in different sectors of economy results in job creation.

 Following are the major FDI policy changes made during the year:

Defence:

The Government vide Press Note 7  /2014 dated 26th August, 2014 has allowed FDI upto 49% on approval route in Defence sector with certain conditions e.g., the applicant company seeking FIPB approval be an Indian company owned and controlled by resident Indian citizens. Above 49% the proposal will be routed to Cabinet Committee on Security on a case to case basis, wherever it is likely to result in access to modern and state-of-art technology in the country. FPI investment has been allowed to be made in the Defence sector upto 24% on automatic route.  A number of conditions have been relaxed /removed making the sector more investor friendly.

The proposal is expected to result in technology transfer which would help in increasing the production base and providing an impetus to manufacturing sector and job creation in India. The measure is expected to not only reduce the heavy burden of imports and conserve foreign exchange reserves but also make domestic manufacturing an integral part of GDP growth of the country.

Railways:

The Govt. (vide PN 8/2014 dated 26th August, 2014)  has allowed 100% private and FDI investment under automatic route in Rail infrastructure (other than construction, operation and maintenance of (i) Suburban corridor projects through PPP, (ii) High speed train projects, (iii) Dedicated freight lines, (iv) Rolling stock including train sets, and locomotives/coaches manufacturing and maintenance facilities, (v) Railway Electrification, (vi) Signaling systems, (vii) Freight terminals, (viii) Passenger terminals, (ix) Infrastructure in industrial park pertaining to railway line/sidings including electrified railway lines and connectivities to main railway line and (x) Mass Rapid Transport Systems ) subject to meeting sectoral laws and with the condition that FDI beyond 49% in sensitive areas from security point of view will be approved by the Cabinet Committee on Security on a case to case basis.

The proposal for amendments will facilitate private investment including FDI inflows into infrastructure projects including elevated rail corridor project in Mumbai, High Speed Train project, port connectivity projects, dedicated freight corridors, logistic parks, station development, locomotive manufacturing units and power plants, through public-private partnerships which would not only bring in the much needed capital but also technology and global best practices.

Construction Development:

The Government has issued the Press Note No. 10 on 3rd December, 2014 amending the FDI policy regarding Construction Development Sector.   Amended policy includes easing of area restriction norms, reduction of minimum capitalization and easy exit from project.   Further, in order to give boost to low cost affordable housing, it has been provided that conditions of area restriction and minimum capitalization will not apply to cases committing 30% of the project cost towards affordable housing.

FDI INFLOWS

Total FDI into India, since April, 2000, including equity inflows, reinvested earnings and other capital, is US $ 345.29 billion (April, 2000-September, 2014). During the calendar year 2014 (i.e. during January- September, 2014), FDI equity inflows of US $ 22.43 billion have been received. This represents increase of 24% over the FDI equity inflows of US $ 18.07 Billion received during the corresponding period (January- September 2013) of the previous calendar year (2013).

During the financial year 2014-15 (i.e. April- September, 2014), FDI equity inflows of US $ 14.69 billion have been received. This represents an increase of 17% over the FDI equity inflows of US$ 12.59 billion received during the corresponding period (April 2013- September, 2013) of the previous financial year (2013-14).