Moves a bid to become part of global supply chain amid trade war disruptions
All procurements made from India by an entity for a single brand will now be counted towards local sourcing of 30%
New Delhi: The Union cabinet cleared a raft of changes in foreign direct investment (FDI) regulations, including easing rules for overseas single-brand stores and permitting FDI through the automatic route in contract manufacturing and all areas of coal mining.
“The changes in FDI policy will result in making India a more attractive destination, leading to benefits of increased investments, employment and growth," a cabinet statement said on Wednesday.
The Indian economy had decelerated to a five-year low of 5.8% in the March quarter, while high-frequency indicators, including automobile sales, have signalled a consumption slump.
Most analysts expect the economy to slow down further in the June quarter, GDP data for which will be released on Friday. Last week, finance minister Nirmala Sitharaman announced a number of measures to boost investor sentiment and spur economic growth.
“This government since 2014 has kept reforms as a part of the agenda. It is an ongoing process for us. It is not as if in this tenure, post 2019, we have forgotten the reform agenda. Not at all. Reform is a continuous process and we are treating it as a continuing endeavour," Sitharaman said on Friday.
The reforms are part of India’s strategy to become part of the global supply chain amid its disruption due to the US-China trade war.
In her maiden budget speech on 5 July, Sitharaman had proposed to examine suggestions of further opening up FDI in aviation, media and insurance sectors in consultation with all stakeholders.
In single-brand retail, the government on Wednesday allowed companies to conduct online retail trading prior to opening of physical stores, subject to the condition that brick-and-mortar stores come up within two years from the date it starts online operations. “Online sales will lead to creation of jobs in logistics, digital payments, customer care, training and product skilling," the press statement said.
To provide greater flexibility and ease of operations to foreign single-brand retail entities with more than 51% FDI, the cabinet decided that all procurements made from India by the entity for that single brand shall be counted towards local sourcing of 30%, irrespective of whether the goods procured are sold in India or exported. Further, the current cap of considering exports for five years only was removed, to give an impetus to exports.
So far, only incremental sourcing of the single brand entity was taken into account while current sourcing was not considered. From now on, total sourcing, including by group companies, will be considered for meeting the 30% local sourcing norm.
The cabinet on Wednesday allowed 100% FDI in contract manufacturing, allowing large foreign electronics and pharmaceutical companies to directly invest in local or foreign contract manufacturers. This will give a big boost to the government’s Make in India policy.
“Manufacturing activities may be conducted either by the investee entity or through contract manufacturing in India under a legally tenable contract, whether on Principal to Principal or Principal to Agent basis," the statement added.
So far, 100% FDI under the automatic route was allowed for coal processing plants as well as for coal mining for captive consumption by power projects, iron and steel and cement units.
The Union cabinet on Wednesday allowed 100% FDI under the automatic route for coal mining as well as sale and export of coal. This is expected to end the monopoly enjoyed so far by Coal India Ltd (CIL), which is often considered lacking capability to mine the coalfields.